What is the auditor required to do regarding internal control when auditing Pearce Bespoke?
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.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control—related matters that we identified during the audit.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Pearce Bespoke's 2025 Franchise Disclosure Document, the auditor's responsibility regarding internal control is to obtain an understanding of internal control relevant to the audit. This understanding is for the purpose of designing audit procedures that are appropriate for the circumstances, but not for expressing an opinion on the effectiveness of Pearce Bespoke's internal control. The FDD explicitly states that no such opinion is expressed.
In simpler terms, the auditor needs to know enough about Pearce Bespoke's internal controls to plan a good audit. They need to assess if the financial statements could be wrong because of mistakes or fraud, and then design their audit to look for those potential problems. However, the auditor's job is NOT to say whether Pearce Bespoke's internal controls are good or bad overall. They are only looking at the controls to help them do the financial audit.
This approach is standard in financial auditing. Auditors focus on internal controls as a means to assess the risk of material misstatement in financial statements. They use this assessment to tailor the nature, timing, and extent of their audit procedures. The communication requirement ensures that those charged with governance are informed of any significant internal control matters identified during the audit, even though a formal opinion on the effectiveness of internal control is not provided.