How are misstatements considered material in the context of Pump It Up's consolidated financial statements?
Pump_It_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
Source: Item 23 — RECEIPTS (FDD pages 60–225)
What This Means (2025 FDD)
According to Pump It Up's 2025 Franchise Disclosure Document, misstatements in the consolidated financial statements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user of those financial statements. This definition is used by the auditors, CliftonLarsonAllen LLP, in their assessment of the financial statements. The auditor's objective is to obtain reasonable assurance that the consolidated financial statements are free from material misstatement, whether due to fraud or error.
It is important to note that reasonable assurance is a high level of assurance, but it is not absolute. Therefore, an audit conducted following Generally Accepted Auditing Standards (GAAS) does not guarantee that all material misstatements will be detected. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve more complex methods such as collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
For a prospective Pump It Up franchisee, this means that the financial statements presented in the FDD are audited with the goal of ensuring they are free from material misstatements that could influence a reasonable person's judgment. However, franchisees should understand the inherent limitations of an audit and the potential for undetected misstatements, especially those resulting from fraud. Therefore, it is advisable for potential franchisees to carefully review the financial statements and consult with their own financial advisors to assess the financial health of FB Holdings, LLC and its subsidiaries, including Pump It Up Holdings, LLC.