How are misstatements considered material in the context of the consolidated financial statements for Moes Southwest Grill?
Moes_Southwest_Grill Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the consolidated 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 US 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 consolidated financial statements.
Source: Item 23 — Receipts (FDD pages 92–334)
What This Means (2025 FDD)
According to the 2025 FDD, misstatements in the consolidated financial statements of GoTo Foods LLC, the parent company of Moe's Southwest Grill, are considered material if they could influence the judgment of a reasonable user of those financial statements. This means that if an error or omission in the financial statements is significant enough that it would likely change how someone interprets the company's financial health, it is considered a material misstatement. This assessment can be made either individually for a specific misstatement or when considering multiple misstatements in the aggregate.
The auditor's responsibility is to obtain reasonable assurance that the consolidated financial statements are free from material misstatement, whether due to fraud or error. However, this is not an absolute guarantee, as there's always a risk that a material misstatement might not be detected, especially if it results from fraud involving collusion, forgery, or intentional omissions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error.
For a prospective Moe's Southwest Grill franchisee, this information is relevant because it provides insight into the standards used to ensure the accuracy and reliability of the financial information presented by the parent company. Understanding how materiality is defined helps in assessing the potential impact of any inaccuracies on the overall financial picture of the company. It also highlights the importance of the auditor's role in verifying the financial statements and the inherent limitations in detecting all potential misstatements.