When auditing Hardees' financial statements, is the auditor required to express an opinion on the effectiveness of internal control?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the ingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the auditor is not required to express an opinion on the effectiveness of the company's internal control. While the auditor does obtain an understanding of internal control relevant to the audit, this is done to design appropriate audit procedures, not to provide an opinion on the overall effectiveness of Hardees' internal controls. The FDD states explicitly that no such opinion is expressed.
This means that the audit focuses on whether the financial statements are fairly presented and free from material misstatement. The auditor's procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. They also evaluate the appropriateness of accounting policies and the reasonableness of significant accounting estimates made by management. The auditor's responsibility is to provide reasonable assurance that the financial statements as a whole are free from material misstatement.
Prospective Hardees franchisees should understand that the audit provides assurance on the accuracy of the financial statements but does not guarantee the effectiveness of Hardees' internal controls. While the auditors are required to communicate with those charged with governance regarding certain internal control-related matters identified during the audit, the audit's primary purpose is not to assess or report on the strength of these controls. This is a fairly standard practice in financial auditing, where the focus is on the reliability of the financial statements themselves.
Therefore, while the audit offers a level of comfort regarding the financial reporting, franchisees should conduct their own due diligence to assess the overall operational and financial risks associated with investing in a Hardees franchise. This may include evaluating the company's internal control environment through other means, such as discussions with existing franchisees or independent investigations.