Analyzing Financial Reports And Risk Assessment For DIPL Audit

Financial and ratio analysis of DIPL for the years 2013, 2014, 2015

Q1 Financial and ratio analysis of DIPL for the years 2013, 2014, 2015

The financial ratio analysis is meant to gauge whether a company in general is performing better than its previous years and if not so the remedies for the current situation. Although due to growth of a company the ratios might change, they don’t change the company’s ability to stay within the limits of their financial muscles (Balasundaram, 2012).

People are as good as the tools they own. Therefore, to consistently deliver high quality audit services, we are always investing in improving our audit methods. We keep on constant updating to follow the latest trends and share them throughout our network (Millichamp and Taylor, 2012).

Current ratio- this is the ratio between the current assets and current liabilities. In 2013, it stood at 1.42, in 2014, jumped to 1.47 and in 2015, it went to 1.5. this is a good sign albeit a marginal increase.

Debt ratio- it is the ratio of total liabilities over total assets. In 2013, it stood at 0.29, in 2014 it increased to 0.32 and in 2015, it dropped to 0.24. this means that the management is doing good in managing its debt due to the drop.

Quick Ratio- this is the ratio of account receivable and cash divided by the current liabilities, in 2013, it stood at 0.82, in 2014 it rose to 0.92 and in 2015 it reduced to 0.85. This means that the quick ratio is reducing which is good for DIPL.

Debt equity ratio- it is the ratio of total debt over equity. It increase marginally from 2013 to 2015. This shows that the debt of the company is growing at a fast pace and should be checked at equity levels.

Gross profit Ratio- it reduces from 2013 which it stood at 0.175, 2014 dropped to 0.161 and 2015 further dipped to 0.152. This means reduced profit compared to net sales and the cost should be checked.

Net profit Ratio- found as a ratio between net sales and net income. It is increasing within the years and this is good for the company.

Time Interest Ratio- it is reducing from 2013 to 2015. It means that the interest rates are rising and thus affecting the overall profits of the company is a negative way.

Return on Equity- it is the ratio of net income comparable to equity. In 2013, it was at0.257, in 2014 it was at 0.212 and in 2015 it was at 0.242. the higher the better but for this one it is fluctuating .

ROA-a ratio that shows how fast an asset will repay itself. In 2014, ROA was at 0.182, in 2014 it became 0.142 and in 2015 it became 0.114. this means that overtime the ROA is dropping meaning the company is not fairing well.

Days in sales recievable ratio- shows the number of days for recivables to be sold. In 2013 it was at 143.6 days, in 2014 it was at 167.94 days and in 2015 it rose to 231 days.  This means that the company is not doing too good on sales recievables due to increase in number of days especially in year 2015.

Types of audit risk

Recievable turnover ratio- the number of days for inventory to be sold. In 2013 it was at 2.41, in 2014 and 2015 it was at 1.30 and 1.40 respectively.  DIPL is doing great on this front in turnover of recievable.

Inventory turnover ratio- just like recievable turnover, DIPL is doing a good job in turnover of inventory. In 2013, it was at 12.50, in 2014, it was at 11.88 and in 2015 it stood at 8.82

Q2) Inherent risk of DIPL

Types of audit risk

This is a risk that exists when a company has internal controls that will affect the company in a financial way. Audit risks have control issues in inherent risks especially in inventory management and DIPL printing days. When an auditor takes an analysis of the company inventory and is not sure that will be (Montgomery, 2013)
An audit risk is one that exists at all times and therefore generates the possibility of an auditor issuing erroneous  and statements or information due to the fact that they did not detected any significant errors  that could completely modify the report opinion by the auditor.

Economic-financial management (GEF)

Economic-Financial Management is a set of different actions and processes interrelated with each other, with the objective of organizing, planning, directing and controlling, in an efficient and effective manner, the human, financial and material resources necessary for the operation and development of the Organizations, rigorously controlling them and using them rationally, to achieve the proposed objectives. So we can affirm that the GEF is a tool more at the service of the integral management of the organizations (Wong and Ho, 2006).

Control risk: Internal systems of control that are implemented within the company and in circumstances that are  inadequate for the application and  irregularities detection that are very important influences here. It is for this reason the need and relevance that an administration has in constant revision, verification and adjustments the processes of internal control.

Detection risk: This type of risk is directly related to the audit procedures, so it is not detecting the existence of errors in the process(Flynn, 2012).

It is for this reason that an audit process that contains detection problems very surely at the moment when the information is not analyzed in the appropriate way will not contribute to the detection of inherent risks and of control to which the entity’s information is exposed And also could be giving an incorrect opinion (Wong and Ho, 2006).

Inherent Risk-One of the risks that the company faces is known as inherent risk. In 2014, DIPL acquired a company known as Nuclear Publishing Company(NPL). By acquiring this company DIPL thought that  they had a company with a large range of medical textbooks that were specialized . However as a new theory was published the medical specialized textbooks became obsolete. Nuclear Publishing Company was experiencing a high inherent risk because its products became obsolete.

Inventory waste and damage risk- every company that deals with manufacturing including printing like DIPL  faces this risk in the normal business processes. Damaged goods go to waste and cannot be used. To avoid inventory from being damaged DIPL  should introduce inventory control policies that ensures that one minimizes damage as much as possible and also regulate regarding the effective use of inventory to prevent waste (Saxena et al., n.d.).

Determining risks is key when an auditor starts working with a client.  While assessing inherent risk, the auditor should not put in place any thought that the company has internal controls in place. The job of the auditor in this case is to assess inherent risk to evaluate how susceptible DIPL financial statements  are to material misstatements . the following factors can affect  the audit: first, environmental and external factors  for example rapid change where inventory become obsolete. Expiring patents e.tc

Second, the account balance of an asset that is susceptible to fraud or theft must be considered inherently risky(Rifkin, Bouwer and Sheff, 2007).  For a company like DIPL who have clients who pay in cash, the account balance sheet and cash account is going to be associated with fraud or theft. These changes the amount of time an auditor is going to spend examining these accounts as compared to when there were no cash transactions in the company (Saxena et al., n.d.).

References

Balasundaram, N. (2012). Ratio analysis. [Place of publication not identified]: Lap Lambert Academic Publ.

Flynn, N. (2012). The social media handbook. San Francisco: Pfeiffer.

Millichamp, A. and Taylor, J. (2012). Auditing. [Andover?]: Cengage Learning.

Montgomery, R. (2013). Auditing. [Place of publication not identified]: Theclassics Us.

Rifkin, E., Bouwer, E. and Sheff, B. (2007). The illusion of certainty. New York, NY: Springer.

Saxena, R., Srinivas, K., Rai, U. and Rai, S. (n.d.). Auditing.

Wong, L. and Ho, T. (2006). Auditing. Hong Kong: Hong Kong Institute of Accredited Accounting Technicians.

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