For Noodles & Company, what two criteria define a critical audit matter?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, a critical audit matter is defined by two criteria. First, it must relate to accounts or disclosures that are material to the financial statements. This means the matter has a significant impact on the overall financial picture presented by Noodles & Company. Second, it must involve especially challenging, subjective, or complex judgments by the auditors. This indicates that the matter required a high degree of analysis and interpretation by the auditors due to its complexity or the need for significant professional judgment.
For a prospective Noodles & Company franchisee, understanding these criteria is important because it sheds light on the areas of the company's financials that are both significant and subject to complex evaluation. The disclosure of critical audit matters provides transparency into the financial review process and highlights potential areas of uncertainty or risk within the company's financial reporting. This can help franchisees assess the financial stability and reporting practices of Noodles & Company.
The FDD further explains that the communication of a critical audit matter does not change the auditor's overall opinion on the financial statements. It also clarifies that the auditor is not providing a separate opinion on the critical audit matter itself. Instead, it serves to highlight specific areas that required significant attention during the audit process. In the case of Noodles & Company, an example of a critical audit matter was the impairment of long-lived assets, specifically related to restaurant assets, which involved subjective judgment in evaluating expected restaurant revenues.
Therefore, while the audit opinion confirms the fair presentation of the financial statements, the critical audit matters point to areas where prospective franchisees might want to seek additional clarification or perform further due diligence. This could involve understanding the assumptions used in evaluating long-lived assets or assessing the potential impact of market conditions on restaurant revenues. By paying attention to these critical audit matters, potential franchisees can make more informed decisions about investing in a Noodles & Company franchise.