Roman Holiday Pizza's treatment of fair market valuation and other accounting issues, and assesses their business risk and accounting controls. Roman Holiday Pizza is a restaurant franchise that has undertaken a strategy of growth through reacquiring franchise rights. Accounting for those reacquisitions raises serious issues during the audit process.

SAS 109 states that the auditor must gain a sufficient understanding of the entity and its environment, including its internal control, so that the auditor can determine the risk of material misstatement of financial statements, either because of error or fraud. There are red flags in Roman Holiday's environment.

According to the audit team, Roman Holiday has been growing faster than other firms within the industry, but analysts expect that growth rate to slow. Annual sales growth for firms in the restaurant industry was 4.3% for the preceding year, 2006. During recent years, most of Roman Holiday's growth came from acquisitions...
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