What is the purpose of obtaining an understanding of internal control relevant to the audit of Remax?
Remax 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 the Company'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 the Company'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 22 — Contracts (FDD pages 108–334)
What This Means (2025 FDD)
According to Remax's 2025 Franchise Disclosure Document, the purpose of obtaining an understanding of internal control relevant to the audit is to design audit procedures that are appropriate in the circumstances. This understanding is not for the purpose of expressing an opinion on the effectiveness of the company's internal control, and the auditors will not express such an opinion.
During the audit, the auditors will exercise professional judgment and maintain professional skepticism. They will 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. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
Furthermore, the auditors will 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. They will also conclude whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern. The auditors are required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit.
For a prospective Remax franchisee, this indicates that Remax's financial statements are audited by an independent firm (KPMG LLP), but the audit's focus is on the fair presentation of the financial statements, not on verifying the strength of Remax's internal controls. While the auditors gain an understanding of internal controls, they do so only to design appropriate audit tests, not to provide assurance on those controls themselves.