What is the auditor's objective in auditing the financial statements of Sonesta Simply Suites?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
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 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 financial statements.
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 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to the 2025 FDD, the auditor's objective is to obtain reasonable assurance that the financial statements of Red Lion Hotels Corporation (RLHC), the parent company of Sonesta Simply Suites, are free from material misstatement, whether due to fraud or error. The auditor aims to issue a report that includes their opinion on whether the financial statements present fairly the company's financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States of America (GAAP). Reasonable assurance, while a high level of assurance, is not absolute and does not guarantee the detection of all material misstatements.
The auditor's responsibilities include exercising professional judgment and maintaining professional skepticism throughout the audit. They identify and assess the risks of material misstatement, design and perform audit procedures responsive to those risks, and examine evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor also obtains an understanding of internal control relevant to the audit to design appropriate procedures, though they do not express an opinion on the effectiveness of the company's internal control.
Furthermore, the auditor evaluates the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements. They also conclude whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern. The auditor is 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 potential Sonesta Simply Suites franchisee, this indicates that the financial statements have been examined by an independent party to provide an opinion on their fairness and reliability. This process helps ensure that the financial information presented is reasonably accurate and can be relied upon for making informed business decisions. However, it is important to recognize that an audit is not a guarantee against all misstatements, and prospective franchisees should still conduct their own due diligence and seek professional advice when evaluating the financial health of the company.