What are the auditors' responsibilities when assessing the risk of material misstatement in 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.
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 auditors have several responsibilities when assessing the risk of material misstatement in the combined consolidated financial statements. Their primary objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit conducted according to Generally Accepted Auditing Standards (GAAS) will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than that of error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
To meet their objectives, the auditors must exercise professional judgment and maintain professional skepticism throughout the audit. They are required to 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. These procedures include examining evidence regarding the amounts and disclosures in the combined consolidated financial statements on a test basis. The auditors also need to obtain an understanding of internal control relevant to the audit in order to design appropriate audit procedures, although they do not express an opinion on the effectiveness of Hardees' internal control.
Furthermore, the auditors evaluate the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the combined consolidated financial statements. They must also conclude whether there are conditions or events that raise substantial doubt about Hardees' ability to continue as a going concern for a reasonable period of time. Finally, the auditors are required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit.
For a prospective Hardees franchisee, understanding the auditor's responsibilities provides insight into the rigor and scrutiny applied to the financial statements. This helps in assessing the reliability of the financial information presented and the potential risks associated with the franchise. It is important to note that while the audit aims to provide reasonable assurance, it is not a guarantee against all misstatements, especially those resulting from fraud.