When auditing My Salon Suite's consolidated financial statements, what should be exercised throughout the audit?
My_Salon_Suite 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 17 — (r) of the FDD and Section 13 of the Franchise Agreement disclose the existence of certain covenants restricting competition to which Franchisee must agree. The Commissioner has held that covenants restricting competition contrary to Section 9-08-06 of the North Dakota Century Code, without further disclosing that such covenants may be subject to this statue, are unfair, unjust, or inequitable within the intent of Section 51-19-09 of the North Dakota Franchise Investment Law. The FDD and the Franchise Agreement are amended accordingly to the extent required by law. (FDD pages 230–274)
What This Means (2025 FDD)
According to My Salon Suite's 2025 Franchise Disclosure Document, during the audit of the consolidated financial statements, the auditor should exercise professional judgment and maintain professional skepticism throughout the entire audit process. This involves a critical assessment of the information provided and a questioning mindset to ensure the financial statements are free from material misstatement, whether due to fraud or error.
Specifically, the auditor must identify and assess the risks of material misstatement in the consolidated financial statements, whether these risks arise from fraud or error. They are required to design and perform audit procedures that are responsive to these identified risks. These procedures include examining evidence related to the amounts and disclosures within the financial statements, which is done on a test basis.
Furthermore, the auditor needs to understand the internal controls relevant to the audit. This understanding is crucial for designing audit procedures that are appropriate for the given circumstances. However, the audit is not conducted to express an opinion on the effectiveness of the company's internal control, and no such opinion is provided. The auditor also evaluates the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by the management, as well as the overall presentation of the financial statements.
Finally, the auditor must conclude whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about My Salon Suite's ability to continue as a going concern for a reasonable period of time. This comprehensive approach ensures that the audit is thorough and that the financial statements provide a fair and accurate representation of the company's financial position.