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Analytical Approach to Identify Relevant Performance

Question:

Discuss About The Allow Company To Identify Relevant Expenses?

From the evaluation of the case study, relevant analytical measures could be identified for Double Ink Printers Limited (DIPL), which could help in identifying its relevant performance. Moreover, the use of analytical procedures could directly help in evaluating the results, which could motivate the company to conduct relevant audit procedures. The audit procedures could directly allow the company to identify the relevant expenses and plan, which needs to be conducted for completing the overall report. Moreover, the audit report could directly help in pin pointing the overall problems that is been faced by the organisation. ARSLAN & DEM?RKAN (2017) mentioned that the use of analytical approach mainly allow the analyst to identify the needs of an audit report.

There are two different types of analytical approach, which could be used by the analyst to evaluate the performance and identify the needs of an audit report. The analytical approaches are ratios and benchmarking, which could be used by the analyst for detecting the financial trend and manipulation that might be conducted by the organisation. Marketing overall variance and performance of the organisation is mainly compared with the help of benchmarking process. On the other hand, ratios mainly help in identifying the overall trend of the organisation over the previous fiscal year. Cuadrado-Ballesteros et al., (2017) mentioned that with the help of ratios analyst are mainly able to compare and contrast between different companies for identifying performance of the organisation.

Particulars

2015

2014

2013

Revenue

       43,459,500

       37,699,500

       34,212,000

Total liabilities

       13,897,500

         5,120,250

         3,780,000

Current assets

         9,600,929

         7,509,150

         5,385,938

Depreciation

             472,688

             274,312

             249,375

Net profit

         2,972,183

         2,291,362

         2,359,190

Current liabilities

         6,397,500

         5,120,250

         3,780,000

Profit margin

6.84%

6.08%

6.90%

Solvency ratio

24.79%

50.11%

69.01%

Current ratio

                    1.50

                    1.47

                    1.42

Moreover, relevant analytical measures such as ratios need to be conducted by the organisation, which is directly used in identifying the needs of an audit report. From the overall evaluation of the above table relevant rations such as profit margin, solvency ratio and current ratio is mainly identified. There is relevant increment in overall current ratio for 1.42 to 1.5 in 2015, as compared from 2013. This rapid increment in the overall current assets of the company and decline in profit margin mainly depicts a controversial stance. Furthermore, the solvency conduction of the company also improved drastically from 2013 to 2015. The overall net profitability of the company increased in 2015, whereas the profit margin declined, which only indicates that the companies cost has increased. However, the current ratio and solvency condition of the company has improved adequately (Eulerich, Henseler & Kohler, 2017).

From the overall evaluation the performance of DIPL is not adequate, which mainly represents the unfavourable changes that could be identified from the financial ratios of the organisation.  The declining profitability and solvency ratio, with the improving current ratio indicates that there is a problem in the overall financial report of an organisation. Inconsistency in the overall financial report mainly forces the company to conduct an audit procedure.

Types of Analytical Approaches

The evaluation of the case study mainly helps in identifying the relevant risk factors that is affecting operational capability of DIPL. Moreover, these risk factors are directly increasing the material misstatement of the organisation and increasing the inheritance risk. Furthermore, the evaluation of annual report also helps in identifying the inconsistency in achieving the required target profits. This is mainly due to the inconsistency and ineffectiveness of the management, who are not able to identify the macro and micro economic factors affecting the operations of the organisation. Therefore, the reduced revenue and profit attained by the organisation mainly leads to inheritance risk that might affect Financial stability of the organisation (Farooq et al., 2017).

The second inheritance risk is mainly portrayed by the inexperienced employees, who are directly affecting operations of the organisation. Employees have no professionalism, which could help in increasing the work force productivity and profitability. These inefficient and experienced employees would mainly make relevant mistakes in the operations of the organisation, which directly increases the inheritance risk. Incapability of the workforce could be identified with the help of this CEO selection conducted in DIPL. The inheritance risk can be seen in the operations conducted by the workforce were not capable to do relevant task in the organisation. The other inheritance risk mainly comes from the low number of employees that is being used by the organisation to support its activities. This low work force has been increasing the work pressure on employees and raises the chances of making mistakes. Therefore, these reasons could be the major factors contributing to the inheritance risk of DIPL.

The overall pressure portrayed by the organisation on its work force mainly increases a chance of miss statement which directly increases the inheritance risk. The company mainly implemented a new accounting system where Accountants were forced to use the system more quickly than anticipated. The employees were not provided with adequate time to make relevant reconciliation with the new software, which could directly increase the risk of misstatement in its annual report. Furthermore, due to the excessive workload employees started to conduct poor bookkeeping services, which directly increased issues in annual report of the organisation. The rising risk of errors in the financial statement is mainly due to the incompetency of the management to conduct relevant checks in the overall financial statement of the organisation. The organisation also provided relevant hi incentives to Management, which relevantly increase the material misstatement condition in the financial report (Fuhrmann et al., 2017).

The two different types of risk that could be identified from the evaluation of the case study, which are affected as follows.

Manipulation in the preparation of financial report

Manipulation and the financial report preparation is the second major risk that could identified from the evaluation of the case study. Currently, the organisation is mainly aiming to receive loan from BDO finance, which relevantly needs different types of requirements. The overall current ratio of the company needs to be at 1.5, while debt to equity ratio needs to be below 1, which could be difficult for the organisation to maintain in the turmoil times. Therefore, there is a need for a fixed current ratio, which could increase the overall fraudulent actions in the organisation to comply with the loans provided by BDO finance.  the requirements of BDO Finance specific if the overall current ratio and debt to equity ratio are not maintained by the organisation then the company could take the finance back at any time. This could mainly be harmful for the organisation, as they need a relevant finance to continue with its operations. Hence, relevant fraudulent activities could be conducted by the management to comply with the loan requirements and maintain its productivity (Green et al., 2017).

Increment in fraudulent activities in the workforce

Fraudulent risk is mainly identified as the first risk, which could directly affect operations of the organisation an increase the misstatement condition. From the valuation of the case study it is identified that DIPL employees could conduct the fraudulent activity due to increased pressures imposed by the management. The management directly force the employees to conduct a massive change in the accounting system without relevant time and workforce. This could directly increase the chance of fraudulent activities conducted by the employees to complete the task on time due to the pressure provided by the management. These fraudulent activities could directly increase the chance of material misstatement in the financial report. Therefore, the accountant responsible for the implementation of new accounting system directly increases the inheritance of the organisation. Moreover, there is relevant risk of inheritance that could be identified in the selection procedure of CEO, which was conducted unethically. Therefore, it could be understood that the management of DIPL is not able to produce relevant integrity and accountability of the company's operations in whole. Li et al., (2017) mentioned that Incremental fraudulent activities in the organisation could directly reduce viability of the organisations ability to continue with its operation.

From the evaluation of the risk relevant problems could be identified from the operations of the organisation. For reducing the overall fraudulent activities relevant system could be imposed, which could help me monitoring activities of the employees. The second problem was mainly identified as the material valuation. The overall raw materials valued at average pricing, where the actual prices are relatively higher. This mainly increases the material misstatement in the annual report of the organisation. Furthermore, the calculation technique does not allow the organisation to identify the actual expenses conducted by the organisation (Nguyen & Kohda 2017). Thus, adequate audit report needs to be conducted for evaluating the overall performance of DIPL from 2013 to 2015.

Reference

ARSLAN, M. C., & DEM?RKAN, S. (2017). Auditing And Assurance Services. THE JOURNAL OF ACCOUNTING AND FINANCE JULY 2017 SPECIAL ISSUE, 127.

Cuadrado-Ballesteros, B., Martínez-Ferrero, J., & García-Sánchez, I. M. (2017). Mitigating information asymmetry through sustainability assurance: The role of accountants and levels of assurance. International Business Review.           

Eulerich, M., Henseler, J., & Köhler, A. G. (2017). The Internal Audit Dilemma-The Impact of Executive Directors Versus Audit Committees on Internal Auditing Work.

Farooq, M. B., Farooq, M. B., de Villiers, C., & de Villiers, C. (2017). The market for sustainability assurance services: A comprehensive literature review and future avenues for research. Pacific Accounting Review, 29(1), 79-106.

Fuhrmann, S., Ott, C., Looks, E., & Guenther, T. W. (2017). The contents of assurance statements for sustainability reports and information asymmetry. Accounting and Business Research, 47(4), 369-400.

Green, W., Green, W., Taylor, S., Taylor, S., Wu, J., & Wu, J. (2017). Determinants of greenhouse gas assurance provider choice. Meditari Accountancy Research, 25(1), 114-135.

Li, C., Raman, K. K., Sun, L., & Wu, D. (2017). The effect of ambiguity in an auditing standard on auditor independence: Evidence from nonaudit fees and SOX 404 opinions. Journal of Contemporary Accounting & Economics, 13(1), 37-51.

Nguyen, L., & Kohda, Y. (2017). Toward a Knowledge Management Framework for Auditing Processes. International Journal of Knowledge and Systems Science (IJKSS), 8(3), 45-67.

Vanstraelen, A., & Schelleman, C. (2017). Auditing private companies: what do we know?. Accounting and Business Research, 47(5), 565-584.

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