What are some examples of actions that may constitute fraud in Sonesta Simply Suites' financial statements?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
the date that the financial statements are available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Sonesta Simply Suites' 2025 Franchise Disclosure Document, the auditor's responsibilities include identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error. The FDD states that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
In simpler terms, this means that Sonesta Simply Suites' financial statements could be materially misstated due to fraudulent activities. These activities might include multiple parties secretly working together (collusion), creating fake documents (forgery), deliberately leaving out important information (intentional omissions), providing false information (misrepresentations), or ignoring established internal control procedures.
The document also indicates that management is responsible for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. This highlights the importance of internal controls in preventing and detecting fraud. If these controls are weak or circumvented, the risk of fraudulent misstatements increases. A potential franchisee should understand that while audits aim to detect material misstatements, fraud is more difficult to uncover than simple errors due to its intentional and often concealed nature.
Ultimately, a prospective Sonesta Simply Suites franchisee should recognize that the FDD emphasizes the importance of both management's responsibility in maintaining accurate financial reporting and the auditor's role in assessing the risk of misstatement, including those resulting from fraud. While the FDD does not provide specific examples of fraud, it outlines the types of activities that could lead to material misstatements in the financial statements.