During the Pearce Bespoke audit, is professional skepticism required?
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 auditors are required to maintain professional skepticism throughout the audit. This means the auditors must exercise professional judgment and maintain a questioning mind when examining the financial statements of Pearce Bespoke. They cannot simply accept the information provided by management at face value.
The auditors' responsibilities include identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error. They design and perform audit procedures responsive to those risks, which include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. This process involves evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Maintaining professional skepticism is crucial for ensuring the accuracy and reliability of Pearce Bespoke's financial statements. It helps the auditors to detect potential misstatements, whether intentional or unintentional, and to provide an independent opinion on whether the financial statements present fairly the company's financial position and results of operations. This benefits potential franchisees by providing them with a more reliable view of the company's financial health.