What is the auditor's responsibility regarding the design and performance of audit procedures responsive to the risks of material misstatement of iTan's financial statements?
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.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate that raise substantial doubt about iTan Franchising, Inc.'s ability to continue as a going concern for a reasonable period of time.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the auditor's responsibility includes identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error. The auditor is then responsible for designing and performing audit procedures that are responsive to those identified risks. These procedures involve examining evidence related to the amounts and disclosures within the financial statements, conducted on a test basis.
In simpler terms, the auditor must evaluate where the financial statements might be wrong (either by mistake or fraud) and then create and execute audit steps specifically targeted to address those potential issues. This involves looking at samples of evidence supporting the numbers and information presented in the financial statements.
It is important to note that the auditor's responsibility is to provide reasonable assurance that the financial statements are free from material misstatement. However, this is not an absolute guarantee. The auditor's procedures are designed to detect material misstatements, but there is always a risk that some misstatements, particularly those resulting from fraud, may not be detected. The auditor's procedures are not designed to express an opinion on the effectiveness of Itan's internal control.