What is the auditor's responsibility regarding the evaluation of the appropriateness of accounting policies used by management for Sonesta Simply Suites?
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.
- 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Sonesta Simply Suites's 2025 Franchise Disclosure Document, the auditor has a responsibility to evaluate the appropriateness of the accounting policies used by the management. This evaluation is part of a broader audit conducted in accordance with auditing standards generally accepted in the United States of America (GAAS). The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion.
In practical terms, this means the auditor must exercise professional judgment and maintain professional skepticism throughout the audit. They need to identify and assess the risks of material misstatement in the financial statements, whether due to fraud or error, and design audit procedures to respond to those risks. These procedures include examining evidence related to the amounts and disclosures in the financial statements on a test basis. The auditor also needs to understand the internal controls 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 must evaluate not only the appropriateness of the accounting policies but also the reasonableness of significant accounting estimates made by management and the overall presentation of the financial statements. The auditor must also conclude whether there are conditions or events that raise substantial doubt about Sonesta Simply Suites's ability to continue as a going concern. Finally, the auditor is required to communicate with those charged with governance regarding the scope and timing of the audit, significant findings, and certain internal control-related matters identified during the audit.
For a prospective Sonesta Simply Suites franchisee, this indicates that the financial statements have been subjected to scrutiny by an independent auditor who has assessed whether the accounting policies used are appropriate and whether the financial statements present a fair view of the company's financial position. This provides a level of assurance, though not a guarantee, about the reliability of the financial information presented.