What is the auditor's responsibility in assessing the risks of material misstatement in Mr. Sandless' financial statements?
Mr_Sandless Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the 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 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, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financialstatements.
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 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 Mr. Sandless Franchise, LLC's internal control. Accordingly, no such opinion is expressed.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 41–42)
What This Means (2025 FDD)
According to Mr. Sandless' 2025 Franchise Disclosure Document, the auditor's responsibility is to identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. This involves designing and performing audit procedures that are responsive to these identified risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
The auditor's objectives are to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. It's important to note that while reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit conducted in accordance with Generally Accepted Auditing Standards (GAAS) will always detect a material misstatement.
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. The auditor must exercise professional judgment and maintain professional skepticism throughout the audit. The auditor also needs to obtain an understanding of internal control relevant to the audit in order to design appropriate audit procedures, but this understanding is not for the purpose of expressing an opinion on the effectiveness of Mr. Sandless' internal control.