Application of Several Analytic Techniques to Financial Report
1.Explain how your results Influence your Planning decisions for the audit for the year ending 30 June 2015
2.Explain why it is a risk and how it may affect the Risk of Material Misstatement in the Financial Report
3.Explain two key fraud risk factors relating to Misstatements arising from Fraudulent Financial reporting to which DIPL may be Susceptible.
There is a chance of development of the audit plan by the analytic techniques of the report information of the financial nature of the DIPL. At the time the audit is undertaken, the plan of audit can be thought of as a specific guideline requiring to be maintained. In a more specific manner it can be said that the task of maintenance cost of the audits is that in which the assessors are assisted. This is thought to be quite reasonable. It also helps to avoid any nature of problems of client as well as authority misunderstandings. The procedure or the way in which the dissemination of the financial declaration as well as the information is performed, are the analytic approach to the declaration or the financial statement of the DIPL firm. Several mechanisms assist the evaluation process along with the utility. It also facilitates the entire process and the mechanism along with the operations. The analytic approach for the declaration analysis which is by nature, financial has certain benefits. It is possible for several accountants to decipher important information to help them in drawing major business conclusions. This system of work also favours financial analysts.
Analysing the financial declaration of a reference point which is common is helped by the analytic approach to the common sizing. This also assists in the comparison of statements financial in nature in terms of several time points or in terms of different corporations. Several lines of mentioned items in the economic report as well as the style of reporting can be understood and analysed by the assessors. Considering an example we can say that the nature in which a particular item is registered the items being the net assets as well as the net liabilities should be considered also along with the owner equity in the financial reporting of the firm as also the digression of the normal has a requirement to be established. The method of analysis needs to be used for the plan execution as well as analysis in connection to the audit which is nothing but benchmarking. This is not improbable as benchmarking is regarded as a procedure for analysis. The variance of the actual economic declaration found from the benchmark helps in evaluation of the deviation as also in the analysis of the reason behind the detected variance for the root cause (Hayes, Wallage and Gortemaker 2014).
Results of the Audit Planning Decisions, Their Results and Influence
In addition to this it can be said that ratio analysis is thought of as an analytic approach of an appropriate nature that assists in the economic declarations in the assessment of the audit plan.
The results of the planning decision regarding the audit and its plan are generally influenced by the analytic method of thinking, and their results which are found such that the dissemination of financial statement information can be conducted. Citing an example it can be said that the outcomes of the ratio analysis for example the current ratio of the firm namely DIPL is calculated as 1.42 in 2013, 1.46 in 2014 and 1.5 in 2015. Also it can be said that the profit margin or the ratio of profitability has been enumerated to be 0.068 in 2013, 0.60 in 2014 and 0.06 in 2015. The specific profit ratio helps to reveal the state or condition of the income earned by the net sales of the DIPL firm (Arens et al. 2016). It can also be said that the net income earned by the firm assist the assessor in knowing the nature of the expenses whether high or low. It also helps to understand whether the firm management control the requirement of the budget curtail as well as the expenses of the firm. The favourable as well as the changes which are unfavourable can be utilized as a reference factor in the audit or assessment of the DIPL firm’s financial health as also the soundness along with the overall condition of the firm (Knechel and Salterio 2016). The ratio useful for determining the trends both desirable as well as undesirable is the solvency ratio (Cannon and Bedard 2016). It is calculated to be 0.62 in 2013, 0.44 in 2014 and 0.21 in 2015. In order to evaluate whether the total cash flow of the economic corporation is adequate or not in meeting the short and long term liabilities of the DIPL firm the three –year period ratio proves useful. The assessors can understand the financial position of the firm relatively in connection to this time period as well as factors unfavourable or undesirable in any way.
It can be stated that there exists several significant factors which influence audit and also involve incidence of misstatements of the material in the announcements of economic nature concerning specific issues. It can be asserted however that several forms of the systematic as well as unsystematic risks are present which assist in the reflection of financial misstatements in the declarations of the financial companies (Barton and Bruder 2014). There is also a probability of the detected risks being due to both financial as well as non-financial factors that ultimately help avoiding the a definite corporation for reflecting a modest, fair as well as free view for pertinent economic declarations. It can also be asserted that an evaluator has a possibility of finding it challenging to examine and recognise several risks. According to the opinion of William it can be said that the identified risks can be connected to several risks which are associated with the omission with the risks of several diverse errors that cannot be considered for a specific book-keeper. All in all it can be said that the inherent risk has a chance of coming from the operations of business in connection to the DIPL (Beasley 2015).
Identification of Inherent Risk Factors from Business Operations
On the basis of a provided study it can be thought that there certainly are numerous transactions which are specifically deleted by the accountants or the corporation management authorities of the DIPL. However, this can sequentially lead to the inconsistencies that specifically owe the ineffectual marketing strategies, in majority which are assisted by the activities related to marketing (Eilifsen et al 2013). Additionally it can be stated that the economic declarations as also their evaluations reveal that the firm completely failed to attain the level of profit which is considered beneficial for the sales of revenue. In particular it might be due to the failure of the firm’s management in relation to the concerned particular requirement identification. Also the consequent adjustments of the corporation’s functionalities are also considered. As a suitable conclusion it can be said that the business organisation’s failure in analysing the micro and macro economic factors that might possibly exist in form of social economic as well as political factors are understood. The poor sales figures of the firm reflect such failures (DeFond and Zhang 2014).
It is due to the DIPL workers that several escalations have been received regarding the overall inherent risks. Lack of proficiency and also knowledge of the company employees have led to considerable escalation and risks of the firm. It might also be due to the establishment of a particular work concern concerning the business depending on the staff-member’s consistency. The non-proficient work forces can also improve the inherent risks as mistakes are bound to occur. Errors of exclusion or removal constitute the misstated announcements being pecuniary on nature.
Apart from the facts discussed above, the other noteworthy aspects contributing to the risks inherent are possible to be divided into numerous segments in a particular manner, which cover environmental as well as external aspects, materialistic misstatements in the particular time periods which are not recent and the falsified exercises are also considered. Numerous environmental facts pointing towards inherent risks that constitute swift changes in places where there is a possibility of issue existence connected to the valuation of inventory, generic market competition as also the shortage of adequate capital.
The current case of the DIPL and its complexities reveal that the CEO’s succession included inherent risks. The aspect of succession of the CEO is different as there lies a certain individuality of the candidates. It can somehow be said that several risks are inherent in the CEO succession method as also the procedure quality regarding the choice, the selection ease as well in the handling process. Thus the process end without the strategy compliance, late initiation as well the CEO’s inadequate involvement
Lack of Proficiency and Knowledge of Company's Employees as Inherent Risk
The given scenario as well as its analysis states that IT system and its implementation has led to several issues. An adequate number of staff were not present to carry out the execution and installation procedure. The testing and the reconciliation were not possible to be carried out before the new arrangement prior to the end of the year. The initial testing process revealed that the steps which were undertaken were not accurate and not in proportion with the accurate time period. The misstatement of the material due to the underlying factors was caused due to it. It was due to the hidden factors involving error or omission in a specific economic declaration.
It can be asserted further that the cash receipt and its records by the professionals in the field of finance on behalf of the company have a chance of reaching out to the inherent risks in the mishandling occasion. A proper and methodical sequence is required to be followed by the employees in order to ensure that the account receivables are registered in a proper manner. The receivable ledger’s proper maintenance and the proper registration of the account receivables need to be registered. In addition the reconciliation of the bank needs to be recorded in a proper manner. In addition to this, the generated revenue from the e-book taking reprint of the textbooks needs to be considered regarding a complexity of the process (Louwers et al 2015).
Along with the valuation process several raw materials at certain costs which are average was unsuitable the average cost being much lower than the present cost of paper.
Risk and its ability to affect the material misstatement risk in the financial report:
The risks inherent in the procedure can be understood as well as successfully identified due to the susceptibility of an assumption pinpointed regarding the material misstatement.
Excessive employee and management pressure:
Excess workload on the members of the staff of the firm leads ot poor levels of bookkeeping. Few important issues like the propensity in encountering issues of cash flow, low level of liquidity as well as poor outcomes of operation occur (Nalewaik and Mills 2016).
Risks of errors or incorrect misinterpretations:
There is the existence of certain reliability as well as the intricacy due to the risk of error as well as the misinterpretation of the risk occurs simultaneously.
Integrity of entire management:
The management at the DIPL firm essentially does not have the integrity requisite so there is the expectation of the prepared reputation as well as business community as an entirety.
Two Key Fraud Risk Factors Relating to Fraudulent Financial Reporting
Unusual management pressure:
There is a chance of misstatements in the declarations of a pecuniary nature due to the incentives in the management.
Nature of business entity:
DIPL leads to a massive amount of financial growth along with the circumstances of a competitive nature. There is a chance of factors impacting the overall underlying risks in the entities of the business.Identification and understanding of two vital types of fraud risks relate to the misstatements arising from the financial reporting frauds.
Risks of fraud lead to the considerable losses of the fraud assets. The dissatisfaction of the work force due o the tremendous work load has a chance of inducing fraud involvement.
The most important fraud risks that occur due to the DIPL firm operations include the engagement of the workforce in the fraudulent actions as also the dissatisfaction level of the employees (Duncan and Whittington 2014).
A separate fraud risk possible is the reporting financial fraud risk. During the excessive expectation from the outside financers for declaration of financial announcements or for meeting certain targets a huge risk of improper financial announcements is present (William, Glover and Prawitt 2016).
Explanation of the risk factor identification:
Depending on the case given, it can be asserted that the process of evaluation for numerous several raw material inventories were not suitable as the average cost of paper was much below the cost of paper. The risk of financial reporting can be detected by the monitoring of the control statements over the course of time.
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