Are the audit procedures for Pearce Bespoke designed to be responsive to the risks of material misstatement?
Pearce_Bespoke 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 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 Pearce Bespoke Franchising, LLC'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 financial statements.
- Conclude whether, in our judgment, there are conditions or events considered in the aggregate, that raise substantial doubt about Pearce Bespoke Franchising, LLC's ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Pearce Bespoke's 2025 Franchise Disclosure Document, the audit procedures are designed to be responsive to the risks of material misstatement. The auditor's responsibilities include identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. These procedures involve examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
In addition to assessing risks, the auditor obtains an understanding of internal control relevant to the audit to design appropriate audit procedures. However, the auditor's report does not express an opinion on the effectiveness of Pearce Bespoke's internal control. The auditor also evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements.
The auditor's objective is 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 is important to note that reasonable assurance is not absolute, and there is a risk that a material misstatement may not be detected, especially one resulting from fraud, which may involve collusion, forgery, or intentional omissions.
Overall, the audit procedures are designed to provide a reasonable level of assurance that the financial statements of Pearce Bespoke are fairly presented and free from material misstatements. Prospective franchisees can take comfort in knowing that the financial statements have been subjected to an independent audit, which includes procedures designed to detect material misstatements.