How are misstatements considered material in the audit of Sonesta Select Sonesta Essential?

According to Sonesta Select Sonesta Essential's 2025 Franchise Disclosure Document, misstatements are considered material if they could influence the judgment of a reasonable user of the financial statements. Specifically, misstatements are 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.

This definition is important for prospective franchisees because it sets the standard for what errors or omissions in the financial statements are significant enough to matter. It assures that the audit aims to detect and correct those misstatements that could potentially mislead someone relying on the financials to make decisions about Sonesta Select Sonesta Essential. The auditor's responsibility is to provide reasonable assurance that the financial statements are free from such material misstatements.

It's also noted that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error. This is because fraud may involve intentional actions like collusion, forgery, or misrepresentation, which are designed to conceal the misstatement. This highlights the importance of internal controls and ethical behavior within Sonesta Select Sonesta Essential to prevent and detect both errors and fraudulent activities that could lead to material misstatements in the financial statements.