What is the auditor's responsibility in assessing the risks of material misstatement of Healthsource Chiropractic's financial statements?
Healthsource_Chiropractic Franchise · 2025 FDDAnswer from 2025 FDD Document
in accordance with generally accepted auditing standards 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 financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the 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 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\nexpressing an opinion on the effectiveness of HealthSource Chiropractic, LLC's internal control. Accordingly, no such opinion is expressed.
Source: Item 23 — Receipts (FDD pages 77–282)
What This Means (2025 FDD)
According to Healthsource Chiropractic's 2025 Franchise Disclosure Document, the auditor's responsibilities include identifying and assessing the risks of material misstatement in the financial statements, whether due to fraud or error. This involves designing and performing audit procedures that are responsive to these identified risks, including examining evidence related to the amounts and disclosures within the financial statements on a test basis.
The auditor must also obtain an understanding of Healthsource Chiropractic's internal control mechanisms relevant to the audit. This understanding is used to design appropriate audit procedures but does not extend to expressing an opinion on the effectiveness of the company's internal control. The auditor evaluates the appropriateness of the accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements.
Furthermore, the auditor concludes whether there are conditions or events that raise substantial doubt about Healthsource Chiropractic's ability to continue as a going concern. The auditor is 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. This process ensures that the financial statements provide a fair and accurate representation of Healthsource Chiropractic's financial position, results of operations, and cash flows.