When auditing Punch King Fitness, what risks should be identified and assessed?
Punch_King_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
t of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's 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 generally accepted auditing standards 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 financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
- Exercise professional judgment and maintain professional skepticism throughout the
- 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.
Source: Item 22 — CONTRACTS (FDD pages 56–215)
What This Means (2024 FDD)
According to Punch King Fitness's 2024 Franchise Disclosure Document, the auditor's responsibilities include identifying and assessing 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. The auditor must exercise professional judgment and maintain professional skepticism throughout the audit.
The auditor also needs to obtain an understanding of internal control relevant to the audit in order to design appropriate audit procedures. However, the audit does not aim to express an opinion on the effectiveness of Punch King Fitness, Inc.'s internal control. The auditor will evaluate 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.
Furthermore, the auditor must conclude whether there are conditions or events that raise substantial doubt about Punch King Fitness, Inc.'s ability to continue as a going concern for a reasonable period of time. The FDD also states that 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 financial statements.