Analyzing DIPL’s Financial Reports
In this study is done over DIPL which is an Australian based company. The business of the company is printing. In this report financial statement of the company is been examined to measure the ratios and to verify the reality of the statements. Inherent risk factors are also been discussed in this report.
In this case study, we will examine the audit of the Double Ink Printers limited which is done by Stewart and Kathy. The business of this company is to print the books, magazines, advertising material for advertising etc. In addition to this examined of ratios has been done to measures the performance of the company and to identify the financial condition of the company. Information related to business helps in auditing process and to measure the business.
1. DIPL should follow the analytical procedure so that the difference of the financial data of the last three of the company can easily examine by this process. Examined of the ratio is being done over DIPL if the analytical procedure is been carry out. The details of financial statement and examine ratios of last three years are as follows:
|
Computation of ratio analysis |
||||
|
Liquidity ratio |
2013 |
2014 |
2015 |
|
|
Current ratio |
1.424851323 |
1.46655925 |
1.500731379 |
0.017751573 |
|
Quick ratio |
0.82797619 |
0.944834334 |
0.847272997 |
0.007768664 |
|
Working capital |
16,05,938.0 |
23,88,900.0 |
32,03,429.0 |
0.331580049 |
|
Profitability Ratios |
||||
|
2013 |
2014 |
2015 |
||
|
Operating Profit Margin |
0.100977727 |
0.089047255 |
0.08898715 |
-0.039581594 |
|
Net Profit Margin |
0.068957968 |
0.060779639 |
0.06838972 |
-0.002746837 |
|
Return on Capital Employed |
0.4 |
0.3 |
0.2 |
-0.160459244 |
|
Return on Equity |
0.257834973 |
0.212484827 |
0.24261746 |
-0.019673454 |
|
Return on Total assets |
0.182458623 |
0.144075478 |
0.113667738 |
-0.125673945 |
|
Debt equity ratio |
||||
|
Capital structure ratio |
2013 |
2014 |
2015 |
|
|
Debt- equity |
0.413114754 |
0.474816041 |
1.134444326 |
0.582025183 |
|
Interest coverage ratio |
40.94205904 |
40.1257067 |
4.78608308 |
-0.294367022 |
|
Efficiency ratio |
||||
|
Efficiency ratio |
2013 |
2014 |
2015 |
|
|
Receivable turnover ratio |
11.08401323 |
9.2532887 |
||
|
Creditor turnover ratio |
12.68542199 |
11.23585229 |
||
|
Inventory turnover ratio |
12.83396414 |
10.75765974 |
||
|
Assets turnover ratio |
2.614942828 |
2.066946288 |
In this table, we examined that several changes are been done over last two years into the company’s financial data. To earn the profit company has to makes the changes in the strategies and plans of the company. After examining the ratio analysis over DIPL, it is measured that financial factors have been influenced because of the various changes made by the company (Bragg, 2017). The liquidity ratio shows that there is an increment of 1.77% in the current ratio of DIPL’s. In addition to this working capital of the company was 16, 05,938 AUD that is increased by 32, 03,429 AUD, in the year2015.
After examining the profitability ratio of DIPL, it measures that the profit of the company is being reduced because of the effective changes and external and internal changes made by the company. Company’s effective margin profit is reduced by 3.95% in the year 2013. The rate of profit margin was 1.009% while in 2015 rate is being estimated as 0.88%.
In addition to this efficiency ratio and capital, structure ratio has been studied for measured the growth and performance of the company (Bragg, 2016). From last two-year company’s capital structure ratio represents that, debt equity ratio is increased by 58.20%.The increased in the debt equity ratio is because of due to variations in the company’s liabilities and assets in last two years.
There is various ratios such as inventory turnover ratio, Assets turnover ratio, efficiency ratios, the receivable turnover ratio of the company is being measured, so that company performance can be measured in terms of the obligation and working capital.
In this report, it mentioned that because of the variations are done in the business’s plans and strategies, operations, and functions, changes have been taking place ( Fazal, 2011). It has been a difficult job for auditors to evaluate the changes and action occur in the business. It is a responsibility of Stewart and Kathy to evaluate the inaccuracies and mistakes.
Inherent Risk Factors in DIPL’s Business Operations
2. The new clients in DIPL are Stewart and Kathy’s, it is essential for auditors to follows the DIPL’s risk assessment for examined the risk elements and make the decision to solve the out risks. In this report risks factors play an important role are as follows:
Inherent risk can take place, when-
- The accountant prepares financial statement, without follows any guidelines
Or
- Frauds activities followed by the accountant for preparing the financial statement.
Examined the DIPL’s case study, there is an increment in the revenue in the last two years, due to this company profit remain less. Because of this company have to pay the high tax return to the Australian government in terms of higher profits (Bragg, 2016). As a result of this company starts doing frauds activities in order to this reduce the profit margin so that company has to pay the less tax and shown in the financial statements. In addition to this by showing the impressive performance of the company in the financial statement, it also impresses the shareholders so that they can invest more in the company ( Perler & Howard M. , 2010). As a result of this misstatement in books of accounts are in the inherent risk factor for DIPL.
In this case study, the business of company can easily manage at domestic level and operated by individuals. But for the international level company have to follow the rules and principles of IFRS and GAAP (Kimmel & Weygandt , 2013). After following the rules and principle of the general accounting company can get the favor from FDIC for huge investment. It is necessary for the company to follow the rules and principle for preparing the financial statement.
3. The factors represent the misstatement in financial statements are as follows;
Interest amount- In the year 2013 company’s interest amount was 84379.0 AUD, and in 2015 amount interest was 808038.0 AUD. The change in interest over two years is 285.87%. By seeing this changes the company’s loan can be examined in order to maintain the capital structure and liquidity position, a huge amount of loan has been taken by the company ( Thibodeau & Freier, 2013). In addition to this revenue also increased that the reason the company has to pay the high rate of tax to the government.
Debt to equity ratio- Debt to equity ratio is being analyzed by the company. It analysis that in the year 2014 company’s debt to equity ratio was 0.47% in the year 2015, the ratio increased by 1.13%. A Huge amount is not required by the company for new projects it has been done to influence the stakeholder and government.
In this report, the company’s financial factors are being examined by the auditor to measures the factors related to the frauds ( Fernando, 2012). Auditor has to follow the process related to finance department process, cash receipts, purchase, and inventory, e book revenue process all these factors are related to risk inherent factor. Information related to the company is measured from BOD’s meeting and financial statements.
Conclusion
In this case study, it has been evaluated that company has taken the part in the frauds and unethical activities. Accounting principle and accounting rules have not been followed by the company for preparing the financial statement. The profit of the company is showing fewer amounts to save the tax and revenue of the company is higher represents. From all these features company use this features to impress the investors or shareholders so that investors can invest the more amount in the company. These frauds activities became the reason for inherent risk for the company.
References
Fazal, . H., 2011. What is Audit risk?. [Online] Available at: https://pakaccountants.com/what-is-audit-risk/
Israel, D., 2009. Data Analysis in Business Research. s.l. SAGE Publications.
Perler, J. & Howard M. , S. M., 2010. Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, s.l. McGraw Hill Education.
Thibodeau, J. & Freier, . D., 2013. Auditing and Accounting Cases: Investigating Issues of Fraud and Professional Ethics. s.l.:Wiley.
Bragg, S., 2016. Audit risk model. [Online] Available at: https://www.accountingtools.com/articles/audit-risk-model.html [Accessed 21 8 2017].
Bragg, S., 2017. Risk of material misstatement. [Online] Available at: https://www.accountingtools.com/articles/2017/5/13/risk-of-material-misstatement [Accessed 24 8 2017].
Dagwell, R., Lambert, C. & Wines, G., 2012. Corporate Accounting in Australia. s.l.:Pearson.
Steve. F., 2012. Business Ethics and Corporate Governance. s.l.:Pearson Education.
Kimmel, P. D. & Weygandt , J. J., 2013. Accounting Principles. s.l.:s.n.
Shaw, K. & Wild , J., 2015. Fundamental Accounting Principles. s.l.:Wiley.
S. S., 2015. Difference Between Accounting and Auditing. [Online] Available at: https://keydifferences.com/difference-between-accounting-and-auditing.html [Accessed 23 8 2017].
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