Is an understanding of internal control relevant to the Pearce Bespoke audit?
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Pearce Bespoke's 2025 Franchise Disclosure Document, an understanding of internal control is relevant to the audit of the company's financial statements. The auditor's responsibilities include obtaining an understanding of internal control that is relevant to the audit. However, the audit is not for the purpose of expressing an opinion on the effectiveness of Pearce Bespoke's internal control, and accordingly, no such opinion is expressed.
The auditor's role is to design audit procedures that are appropriate for the circumstances, which requires assessing the risks of material misstatement of the financial statements, whether due to fraud or error. Fraud may involve the override of internal control, making it more difficult to detect than errors. Therefore, understanding internal control helps the auditor identify potential weaknesses and design procedures to address them.
For a prospective Pearce Bespoke franchisee, this means that the financial statements have been audited by an independent auditor who has considered the company's internal controls as part of their audit process. However, it is important to note that the audit does not provide assurance on the effectiveness of these internal controls. Franchisees may want to inquire about the specific internal controls in place at Pearce Bespoke and any recommendations for improvement made by the auditor.