What are the auditors' objectives when auditing Hardees' combined consolidated financial statements?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the combined consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined consolidated financial statements.
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 combined 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 combined 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 effectiveness of the Company's internal control. Accordingly, 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 combined consolidated financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the auditors' primary objectives are to gain reasonable assurance that the combined consolidated financial statements are free from material misstatement, whether due to fraud or error. Their goal is to issue an auditors' report that includes their professional opinion on the financial statements. The document clarifies that while reasonable assurance is a high level of confidence, it does not guarantee that all material misstatements will be detected. There is always a risk that some misstatements may go unnoticed, especially those resulting from fraud.
The auditors' responsibilities include exercising professional judgment and maintaining professional skepticism throughout the audit. They must identify and assess the risks of material misstatement in the financial statements, whether due to fraud or error, and design audit procedures to respond to those risks. These procedures involve examining evidence related to the amounts and disclosures in the financial statements on a test basis. The auditors also need to understand the company's internal control system to design appropriate audit procedures, although they do not express an opinion on the effectiveness of the internal control itself.
Furthermore, the auditors evaluate the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management. They also assess the overall presentation of the financial statements. The auditors must conclude whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for a reasonable period. These objectives and responsibilities are in line with generally accepted auditing standards (GAAS) in the United States.
For a prospective Hardees franchisee, this information indicates the level of scrutiny and assurance applied to Hardees' financial statements. Understanding the auditors' objectives can give franchisees confidence in the reliability of the financial information presented, which is crucial for making informed investment decisions. It also highlights the importance of internal controls and accurate financial reporting in the Hardees organization.