What is the auditor's responsibility in evaluating Stretch Zone's ability to continue as a going concern?
Stretch_Zone 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 3 — Franchisee/Debtor's Warranties. (FDD pages 263–364)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, the auditor's responsibility is to conclude whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for a reasonable period of time. This assessment is made by exercising professional judgment and maintaining professional skepticism throughout the audit. The auditor must evaluate the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements.
The auditor's responsibilities include identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. These procedures involve examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor also needs to obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, although the audit does not aim to express an opinion on the effectiveness of Stretch Zone's internal control.
It is important to note that the auditor's assurance is not absolute. While the auditor aims to obtain reasonable assurance that the financial statements are free from material misstatement, there is always a risk that a material misstatement may not be detected, especially if it results from fraud involving collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. The auditor's report includes their opinion on whether the financial statements present fairly the financial position of Stretch Zone.
Ultimately, the auditor must 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. This communication ensures transparency and provides stakeholders with important information about the audit process and its findings.