What is the auditor's responsibility regarding Stretch Zone's internal controls during the audit?
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 regarding internal controls is to obtain an understanding of internal control relevant to the audit. This understanding is used to design audit procedures that are appropriate for the circumstances, but it is explicitly not for the purpose of expressing an opinion on the effectiveness of Stretch Zone's internal control. Therefore, the auditor's report will not include an opinion on the effectiveness of Stretch Zone's internal controls.
This means that while the auditor assesses internal controls to plan the audit, they do not provide assurance that these controls are effective. A prospective franchisee should understand that the audit focuses on the accuracy of the financial statements, not on the quality of Stretch Zone's internal control systems.
It is important for a potential Stretch Zone franchisee to recognize this limitation. The audit provides a level of confidence in the financial figures presented, but it does not guarantee that Stretch Zone has robust internal controls to prevent fraud or errors. A franchisee may want to perform their own due diligence to assess the franchisor's internal controls and risk management practices.