What level of assurance is provided by an audit of Hardees' consolidated financial statements, and what guarantees does it offer regarding the detection of material misstatements?
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.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the audit of the consolidated financial statements aims to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The auditors issue a report that includes their opinion on the financial statements. This audit is conducted in accordance with auditing standards generally accepted in the United States of America (GAAS). Management is responsible for the preparation and fair presentation of the financial statements. They are also responsible for designing, implementing, and maintaining internal controls relevant to the preparation and presentation of financial statements that are free from material misstatement.
However, the FDD clarifies that reasonable assurance is a high level of assurance, but it is not absolute. Therefore, an audit conducted following GAAS does not guarantee that a material misstatement will always be detected. The risk of not detecting a material misstatement is higher when it results from fraud compared to error. This is because fraud may involve activities like collusion, forgery, intentional omissions, misrepresentations, or the overriding of internal controls.
For a prospective Hardees franchisee, this means that while the financial statements have been audited to provide a certain level of confidence in their accuracy, there is still a risk that material misstatements, especially those resulting from fraud, may not be detected. Therefore, it is crucial for franchisees to not solely rely on the audited financial statements but also conduct their own due diligence and seek professional financial advice before making any investment decisions. 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 consolidated financial statements.