What does the auditor do to identify and assess the risks of material misstatement of Ledgers' financial statements?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with auditing standards generally accepted in the United States of America, 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 Loyalty Business Services, 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 Loyalty Business Services, LLC's ability to continue as a going concern for a reasonable period of time.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to Ledgers' 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, which includes examining evidence related to the amounts and disclosures within the financial statements on a test basis. The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, providing an opinion in their report.
The auditor also obtains an understanding of internal controls relevant to the audit to design appropriate audit procedures, though they do not express an opinion on the effectiveness of Ledgers' internal control systems. Furthermore, 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.
It is important to note that while the auditor aims to detect material misstatements, there is always a risk that some misstatements, particularly those resulting from fraud, may not be detected. The auditor exercises professional judgment and maintains professional skepticism throughout the audit to mitigate this risk. Additionally, the auditor considers whether there are conditions or events that raise substantial doubt about Ledgers' ability to continue as a going concern.