What is the auditor's responsibility regarding internal controls during the audit of Monicals Pizza?
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.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings and certain internal control-related matters that we identified during the audit.
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to the 2025 FDD, when auditing Monicals Pizza's financial statements, the auditor, in accordance with Generally Accepted Auditing Standards (GAAS), must gain an understanding of the company's internal controls relevant to the audit. This understanding is used to design audit procedures that are appropriate for the given circumstances.
However, the auditor's responsibility is explicitly limited. The auditor's goal is not to express an opinion on the effectiveness of Monicals Pizza's internal control system. Therefore, the auditor's report will not include any such opinion. This means a potential franchisee cannot rely on the audit to provide assurance about the strength of Monicals Pizza's internal controls.
During the audit, the auditor is required to communicate with those in charge of governance (such as the board of directors) regarding the planned scope and timing of the audit. They must also report any significant findings and certain internal control-related issues identified during the audit. This communication ensures that key stakeholders are informed of any potential weaknesses or areas of concern related to internal controls that come to light during the audit process.