When preparing Kidokinetics' financial statements, what is management required to evaluate regarding the company's ability to continue as a going concern?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics' 2024 Franchise Disclosure Document, when preparing the company's financial statements, management is required to evaluate the company's ability to continue as a going concern. Specifically, management must consider whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about Kidokinetics' ability to continue operating for at least one year after the date the financial statements are issued. This evaluation is a standard accounting practice, ensuring that the financial statements provide a realistic view of the company's financial health.
This "going concern" assessment is crucial for prospective franchisees because it speaks directly to the stability and long-term viability of Kidokinetics. If there are significant doubts about the company's ability to continue operating, it could indicate financial distress or other underlying issues that might affect the support and services provided to franchisees. A franchisee wants to invest in a brand that demonstrates a strong likelihood of remaining in business and supporting its franchise network.
The auditor's report included in the FDD emphasizes management's responsibility for this evaluation. The auditor's role is to provide an independent opinion on whether the financial statements present fairly the company's financial position, but the initial responsibility for assessing the going concern status rests with the management team. This assessment is based on accounting principles generally accepted in the United States of America.
For a potential Kidokinetics franchisee, understanding this requirement is essential for assessing the risk associated with investing in the franchise. Reviewing the financial statements and any related notes, along with the auditor's report, can provide insights into the company's financial stability and its ability to meet its obligations in the foreseeable future. If there are any indications of potential issues, it would be prudent to seek further clarification from the franchisor or a financial advisor before making a final investment decision.