For Sonesta Simply Suites, what is the auditor's responsibility regarding the evaluation of the reasonableness of significant accounting estimates made by management?
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.
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 reasonableness of significant accounting estimates made by the management of Red Lion Hotels Corporation (RLHC). This evaluation is part of the 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 process. They must identify and assess the risks of material misstatement in 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. The auditor must also obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, though they do not express an opinion on the effectiveness of the company's internal control.
For a prospective Sonesta Simply Suites franchisee, this indicates that the financial statements of RLHC, the parent company, are subject to scrutiny by an independent auditor who assesses the reasonableness of the accounting estimates made by management. This process aims to provide a higher level of confidence in the accuracy and reliability of the financial information presented. The auditor's evaluation helps ensure that the financial statements provide a fair and accurate representation of the company's financial position and performance, which is crucial for making informed investment decisions.