What does the auditor say about detecting material misstatements in Hyper Kidz's financial statements?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchise, LLC's ability to continue as a going concern for one year after the date that the financial statements are issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's 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 financial statements.
In performing an audit in accordance with GAAS, we:
sess CPA LLC
- 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,\nevidence 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 expressing an opinion on the effectiveness of Boomerang Franchise, LLC'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 financial statements.
- Conclude whether, in our judgment, there are conditions or events considered in the aggregate, that raise substantial doubt about Boomerang Franchise, LLC's ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 52)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, the auditor's report addresses the responsibilities related to auditing the financial statements. The auditor's objective is to gain reasonable assurance that the financial statements are free from material misstatements, whether those misstatements are due to fraud or error. The auditor aims to issue a report that includes their opinion on the financial statements.
However, the auditor clarifies that reasonable assurance is not absolute. Therefore, an audit conducted following Generally Accepted Auditing Standards (GAAS) does not guarantee that all material misstatements will be detected. The risk of not detecting a material misstatement is higher when it results from fraud, as fraud may involve actions like collusion, forgery, intentional omissions, misrepresentations, or overriding internal controls.
The auditor's report defines material misstatements as those that, individually or in the aggregate, would likely influence the judgment of a reasonable user of the financial statements. As part of the audit process, the auditor exercises professional judgment, maintains professional skepticism, identifies and assesses risks of material misstatement, and designs audit procedures responsive to those risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor also obtains an understanding of internal controls but does not express an opinion on their effectiveness.
Furthermore, the auditor evaluates the appropriateness of accounting policies, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements. The auditor also considers whether there are conditions or events that raise substantial doubt about Hyper Kidz's ability to continue as a going concern. Finally, the auditor is required to communicate with those charged with governance regarding the scope and timing of the audit, significant audit findings, and internal control-related matters identified during the audit.