What is the auditor's responsibility in evaluating the appropriateness of accounting policies used by iTan's management?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
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 expressing an opinion on the effectiveness of iTan Franchising, Inc.'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 financial statements.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the auditor has a specific responsibility to evaluate the appropriateness of the accounting policies used by Itan's management. This evaluation is part of a broader audit performed in accordance with generally accepted auditing standards. The auditor's role is to ensure that the financial statements are presented fairly and accurately.
In practical terms, this means the auditor must assess whether the accounting methods chosen by Itan's management are suitable for the business and consistent with accounting principles generally accepted in the United States of America. This involves understanding the nature of Itan's business, its transactions, and the industry in which it operates. The auditor will review the policies related to revenue recognition, expense recognition, asset valuation, and other key areas to determine if they are appropriate.
Furthermore, the auditor also evaluates the reasonableness of significant accounting estimates made by management and the overall presentation of the financial statements. This ensures that the financial statements provide a true and fair view of Itan's financial position and performance. This evaluation helps to provide assurance to potential franchisees and other stakeholders that the financial information is reliable and can be trusted for making informed decisions.