Does the auditor express an opinion on the effectiveness of Sonesta Simply Suites' internal control?
Sonesta_Simply_Suites 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to the 2025 FDD, the auditor’s report for Red Lion Hotels Corporation (RLHC), the parent company of Sonesta Simply Suites, explicitly states that the audit of the financial statements does not include expressing an opinion on the effectiveness of the company's internal control. The auditor's responsibility is to obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, but not to provide assurance on the internal control's effectiveness.
This means that while the auditor assesses internal controls to plan the audit, they do not issue a separate opinion on whether those controls are well-designed or operating effectively. Prospective Sonesta Simply Suites franchisees should understand that the financial statements have been audited for accuracy and fair presentation, but the audit does not provide any assurance about the strength of RLHC's internal controls over financial reporting.
For a potential franchisee, this highlights the importance of conducting their own due diligence regarding the financial stability and operational practices of Sonesta Simply Suites and its parent company. Understanding the scope and limitations of the audit is crucial in making informed investment decisions. While the auditor expresses an opinion on the financial statements, they do not express an opinion on the effectiveness of the company's internal control.