Applying Analytical Procedures to DIPL’s Financial Information
Implementation of analytical process to the financial report of Double Ink Printers Limited (DIPL)
Proper employment of specific analytical processes to different financial declarations of the corporation can back the process of improvement of the design of audit. Basically, audit planning can replicate particular guideline that need to be monitored during a particular time of execution of audit exercise. Essentially, strategy of analysis also helps assessors in supporting and examining audit expends at sensible phase (Eilifsen et al. 2013). Additionally, this also helps in the elucidating the misapprehension along with miscommunication with different consumers of particular corporation. Inspective mechanism of mainly common sizing supports analysis of financial statements in a particular way. Essentially, evaluators can also speak about diverse categories of elements detected in the financial assertions. Subsequently, this can help in assessment of the overall manner of disclosing different economic announcements. Again, this mechanism can be appropriately implemented for evaluating financial assertions and simultaneously evaluating idea of financial evaluation.
Ratio analysis system can be implemented for the analytical assessment after analysis of financial information of the company Double Ink Printers Limited (DIPL) for three successive years (Beasley 2015)
The table presented above reflects the profitability ratio of the company Double Ink Printers and each one of ratio represents the overall profitability position of the business corporation.
- Analysis of the gross profit ratio of the firm for 3 successive years reveals the profitability condition of the firm. This gross profit ratio of the corporation has declined from 17.55% to around 16.13% and further to 15.20% during the year 2015.
- Net profit of the firm DIPL for the 3 successive years is recorded to be 6.09% during 2013, 6.08% registered 2014 and 6.84% recorded during the year 2015. Enhanced net profit ratio of the firm documented during the year 2015 is mainly due to high interest expends of the firm for that specific year incurred by DIPL (Humphrey et al. 2014)
- Return on Assets (ROA) of firm DIPL is calculated to be 18.25% during the year 2013, 14.41% during the year 2014 and 11.3% during the year 2015. Downward trend of ROA for the firm is not desirable and therefore this calls for the need for engagement in further acquirement of assets in the upcoming future (Broberg et al.2013).
- Return on Equity (ROE) of the corporation DIPL for 3 successive years is enumerated to be 78% during the year 2013, 21.25% during the year 2014 and 24.26% during the year 2015.
The table presented replicates the liquidity condition of the corporation DIPL and this table shows that the liquidity condition of the firm has improved considerably over the three successive years
- Current ratio enumerated from the financial report of the firm DIPL is recorded to be 42 during the year 2013, 1.47 during the year 2014 and 1.50 during the year 2015. In essence, this shows that the liquidity condition of the firm DIPL has considerably enhanced marginally during the year 2015 (Arens et al. 2014).
- Quick ratio calculated from the pecuniary declaration of the corporation for the 3 successive years is registered to be 83 during the year 2013, 0.94 during the year 2014 and 0.85 during the year 2015. However, the ideal quick ratio is necessarily 1.5:1. Essentially, this divulges the fact that the liquid assets of the firm DIPL have not considerably improved during the year 2015.
The table presented above reflects the efficiency ratio of the company DIPL for three successive years
- Ratio of DIPL’s Inventory turnover derived from the monetary statement of the firm for the specified 3 following years is derived to be nearly50 in FY 2013, 11.84 in FY 2014 and 8.82 during the year 2015.
- DIPL’s Debtor’s turnover estimated from the monetary account of the business for three following years is found to be roughly 13.78% during FY 2013, 8.73% in FY 2014 and 8.57 in FY 2015.
The table mentioned above reflects the solvency ratio for three successive years for the corporation DIPL
- Debt to equity ratio of the corporation DIPL for three successive years is calculated to be 41 during the year 2013, 0.47 during the year 2014 and 1.13 during the year 2015.
Influence of analytical assessment of audit planning for the period
In essence, there are several identified risks based on analytical assessment along with the evaluation of financial declarations of the firm Double Ink Printers Limited (DIPL) and this aligns with the influence on the audit planning as mentioned below:
- Overall profitability condition of the corporation Double Ink Printers Limited (DIPL) has not got better during the year 2015. Additionally, there is decrease in the overall level of profits in the upcoming period and this in turn can elevate the issue of particularly the going concern of business concern (Beasley 2015). Particularly, it is crucial to undertake an in-depth evaluation of the firm that need to be planned for exploring the future scenario of the firm Double Ink Printers Limited (Dennis 2015).
- There exists greater financial risk in the operations of the corporation Double Ink Printers Limited (DIPL). However, the disclosures are associated to certain category of risks that have the need to be assessed after checking the fact whether information regarding the same has been explicitly mentioned in the declarations (Glover et al. 2016).
- There is considerable shrink in the efficiency of the administration of the firm Double Ink Printers Limited (DIPL). This leads to issues in the management of the current assets of the corporation. This reflects the need for the management to make an effort to recognize the plausible reasons behind the decline in the level of efficiency of the management of the firm (Eilifsen et al. 2013).
Recognition of inherent risk factors stemming from business operations of DIPL
|
Recognition of Risk |
Material Misstatement of financial declaration |
|
Financial Risk As rightly indicated by Knechel and Salterio (2016), financial risk can be considered as the capability of any business to pay off long term accountability in a timely manner |
There is a chance that the firm Double Ink Printers Limited might possibly attempt to manipulate financial records that can help in maintaining current ratio as well as debt ratio as reflected in the contract established with the lending corporation. In a bid to preserve the current ratio, the firm Double Ink Printers Limited might have inflated the overall current assets by means of enhanced value of specific receivables or else stock (Louwers et al. 2015). However, for maintaining the debt equity ratio, management of the firm Double Ink Printers Limited might have inflated the overall value of equity by means of enhanced value of retained income (Arens et al. 2016). |
|
Risk related to Information Technology Hayes et al. (2014) asserts that adoption of information technology gives rise to severe threats to any organization. Essentially, in this case, deficiency in the information technology control might possibly have adverse influence on the business operations of the corporation (Knechel and Salterio 2016) |
Analysis of the operations of the corporation Double Ink Printers Limited reveals the fact that the management of the firm could not maintain an appropriate balance between new systems of accounting along with the existing system of software. Furthermore, there also exists an issue regarding inadequate allocation of dealings for a specific period of time (DeFond and Zhang 2014). However, the accounting notion of periodicity of the firm was also not properly followed. This probably could lead to imprecise presentation of the condition of profitability as well as the financial position of the firm Double Ink Printers Limited (DIPL). |
Possible reasons that lead to the occurrence of inherent risks associated to material misstatement in the financial assertions of the corporation include the following:
- Excessive stress related to work as well as overload of work on the entire workforce and management of the corporation
- Risk associated to undertaking various tasks carried out by different professional accountants in a erroneous way and this might lead to misrepresentation in the pecuniary declarations of the firm
- Trustworthiness of the entire management as well as board of the corporation Double Ink Printers Limited (DIPL)
- Strain on the overall administration of the corporation
- Features along with the nature of operation of the business corporation Double Ink Printers Limited (DIPL).
Important risk facets associated to material misstatement in financial reporting
- One of the most important risk facets that are encountered by the firm Double Ink Printers Limited is necessarily debt covenants. Financial statements of the corporation stating about financial circumstances of the business concern proposes about profit of the corporation. This also aids in the process of identification of the fact that corporations have enhanced the overall proceeds of the firm during a particular time period (FY 2013 and FY 2015). Apart from this, the present business case also reflects that enumerated revenue from sales together with the sales revenue is witnessed to have increased.
Particularly, there exists huge pressure on the entire finance segment of the firm for meeting up diverse debt covenants. Additionally, a loan amount of approximately 7.5 million was derived from the institution BDO Finance during the year 2015 founded on two different covenants. The standard current ratio is essentially 2:1 and debt ratio need not be lower than 1. Again, in case of the corporation Double Ink Printers Limited fails to satisfy the two different conditions, then the loan might be taken back and that again can negatively influence the overall operations of business concern (William Jr et al. 2016). However, there remains a possibility that the specific current assets of the corporation might have got inflated so that the standard level of current ratio can be maintained. Again, there can be manipulations of retained income in which debt ratio need not be lower than 1 (Kogan et al. 2014).
- One of the most significant factors of risk that lead to existence of fraudulent exercises in financial reporting is presence of improperly defined job descriptions along with the improper segmentation of work. In addition to this, there also remains a probability that firm’s inventory can be controlled by means of fewer number of stock during the time of cash arrival (Mihret 2014). Thus, it can be hereby said that there is an improper system that can be utilized for documentation and prevention of fraud. Essentially, the practice of estimation of inventory of particularly raw materials at specific average cost was not appropriate since the charge of specifically paper was considerably beyond the mean cost.
Part B
Impact of risk factors on conduction of audit
During the process of evaluation of risk, auditing detects as well as examines the overall likelihood along with the potential influence of diverse risks faced by the corporation.
- Influence of debt covenants on process of planning audit-It is significant to balance firm’s current assets and liabilities after examining inflation in the current assets or else deflation of current assets (Nagar et al. 2016). Furthermore, the balance of equity also needs to be analysed by means of proper verification of retained income.
- Influence of control environment on planning of audit- It is necessary to examine the overall balance of inventory of the corporation Double Ink Printers Limited. Besides, the overall quantity of specific orders placed for buying of stock that aligns with the quantity received help in recognizing whether manipulation has been carried out by accounts payable officials (Dennis 2015).
References
Arens, A., Elder, R. and Beasley, M., 2014. Auditing and assurance services-An integrated approach; includes coverage of international standards and global auditing issues, in addition to coverage of. Boston: Aufl.
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance services. Pearson.
Beasley, M.S., 2015. Auditing cases: An interactive learning approach. Prentice Hall.
Broberg, P., Umans, T. and Gerlofstig, C., 2013. Balance between auditing and marketing: An explorative study. Journal of International Accounting, Auditing and Taxation, 22(1), pp.57-70.
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2), pp.275-326.
Dennis, I., 2015. Auditing Theory. Routledge.
Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance services. McGraw-Hill.
Glover, S.M., Prawitt, D.F. and Messier, W.F., 2016. Auditing and Assurance Services: A Systematic Approach 10th.
Hayes, R., Wallage, P. and Gortemaker, H., 2014. Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed.
Humphrey, C., Loft, A. and Samsonova-Taddei, A., 2014. The rise of international standards on auditing. The Routledge Companion to Auditing, p.161.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.
Kogan, A., Alles, M.G., Vasarhelyi, M.A. and Wu, J., 2014. Design and evaluation of a continuous data level auditing system. Auditing: A Journal of Practice & Theory, 33(4), pp.221-245.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.
Mihret, D.G., 2014. How can we explain internal auditing? The inadequacy of agency theory and a labor process alternative. Critical Perspectives on Accounting, 25(8), pp.771-782.
Nagar, V., Rajan, M.V. and Ray, K., 2016. The Role of Auditing in Mediating Firm Conflict.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic approach. McGraw-Hill Education.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
