Does the audit of Monicals Pizza include expressing an opinion on the effectiveness of the company's internal control?
Monicals_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the consolidated 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 consolidated 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 the Company'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 consolidated financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to Monicals Pizza's 2025 Franchise Disclosure Document, the audit performed does not include expressing an opinion on the effectiveness of the company's internal control. The document states that while the auditors obtain an understanding of internal control relevant to the audit to design appropriate procedures, it is not for the purpose of expressing an opinion on the effectiveness of the company's internal control. Therefore, no such opinion is expressed.
This means that the audit focuses on the financial statements themselves, ensuring they are presented fairly and in accordance with accounting principles. The auditors assess the risk of material misstatement and examine evidence to support the amounts and disclosures in the financial statements. However, they do not specifically evaluate and report on the overall effectiveness of Monicals Pizza's internal controls.
For a prospective franchisee, this is a standard practice. Most franchise audits focus on the accuracy and reliability of the financial statements rather than a deep dive into internal controls. However, it is important for franchisees to understand that while the financial statements are audited, there is no independent assessment of the strength of Monicals Pizza's internal control systems. Franchisees may want to inquire about the company's internal control practices separately to gain a better understanding of the financial management and risk mitigation strategies in place.