In essence, there are specific results of judgements for both preparation as well as presented of firm’s audit (Duncan and Whittington 2014). However, process of audit can be affected by the precise line of approach of the analytical approach adopted for deciphering specific information from the financial reports declared by the firm DIPL. For instance, analysis of key financial ratio computed from the financial statement of DIPL can help in understanding the financial condition of the firm:
Detailed evaluation of financial state of affairs of the firm DIPL can be carried out by using key financial ratio such as profitability ratio, solvency ratio along with liquidity ratio (Baylis et al. 2017). Results of the financial ratio is hereby enumerated based on the financial assertions declared by the firm DIPL. Profit margin ratio reflecting the profitability condition of the firm is enumerated to be 0.068 during the FY 2013, 0.60 recorded in 2014 and 0.06 in 2015. This shows that the profitability condition of the firm improved during the period 2014, but further declined during the period 2015. Again, the solvency ratio is enumerated to be 0.62 in 2013, 0.44 in 2014 and 0..21 in 2015. Essentially, this replicates the fact that the .solvency condition of the firm dropped during both 2014 and further in 2015. Again, the current ration of DIPL is calculated to be 1.42 in 2013, 1.46 in 2015 and 1.50 in 2015. This shows that the liquidity condition reflected by the current ratio has improved over the said period of time.
Thus, examination of significant financial ratio aids auditors in comprehending diverse expends of the firm are properly well-designed and operational. In addition to this, ratio analysis of the financial statements of DIPL also helps in understanding whether entire costs that the company incurs are unusually high. Furthermore, financial ratio also assists in understanding both the belongings along with resources of the corporation together with the way DIPL can undertake different necessary acts to restrain any sort of adverse incidence (Homb et al. 2014).
Inherent Risk Evaluation of business case on DIPL reflects different errors or else faults exist in financial statements owing to mistakes committed by the proficient accountants. Examination of financial statements also reveals that the company DIPL has failed to attain pre-determined figure on figure from the sales proceeds of the firm. Mainly, this occurs because of failure of the management of the firm to understand diverse necessary requirements along with different micro as well as macro facets of the business environ , let’s say different aspects of political as well as social affairs along with economic facets. It can be hereby witnessed that the lower amount of sales of the firm also directs towards events of inherent risks (Loconto 2017).
Besides this, employees of the firm DIPL also add to the inherent risk of the firm. Again, inadequate experience and level of expertise of the workers also add to the overall inherent risks of the firm DIPL. Nevertheless, the non-proficient employees can escalate the overall inherent risk of the firm as they are more probable to commit errors. However, this can lead to erroneousness representation of financial statements and this might be referred to as the material misstatements (Chambers and Odar 2015). In addition to this, different environmental features can increase the level of inherent risk of the firm. This primarily occurs because of swift transformation in the business environ and proper link to specific schemes, very tough level of competition in the market and shortfall of capital (Graham 2015).
Inherent Risk Inherent risks also occur in the course of selection of CEO and the process of CEO succession. Therefore, there is a pressing need for following a proper strategy for selection of subsequent CEO s of the firm. Essentially, beginning a certain task without sticking to specific pre-stated strategies, beginning the entire process late, inapt linkage to the CEO and selection of the nominee of the CEO might possibly give way to events to inherent risks. Additionally, proper listing and registering of different cash proceeds by finance experts can too lead to development of inherent risks of the company. Again, detailed cataloguing of proceeds from the business from certain e-books, proper issuance of manuals or else text books also add to the inherent risk in the future period as a result of complicatedness of the overall mechanism (Pitt 2014).
Diverse reasons behind the risks due to material misstatement in the financial statements are as mentioned below:
unnecessary work load on employees as well as administration of DIPL
Committing errors while preparation as well as presentation of financial statements can lead to flawed or material misstatements (Jones and Beattie 2015)
steadiness of total administration strain on management features in conjunction with character of functionalities of DIPL Critical analysis of the particular business case on DIPL can lead to incidence of different types of risk. Risks might crop up owing to engagement of different discontented workers in different deceitful actions. Examination of functionalities of the firm reveals the fact that there exists enormous pressure on employees of the firm, administration of DIPL to acquire a new guideline for system of accounting. Nevertheless, this also put forth enormous strain on employees to presume the assignment of suitable and advanced IT induced system of accounting (Duncan and Whittington 2014). This might conceivably occur due to different deceitful actions. As a result, workforces might get engaged in different duplicitous actions. Thereafter, workers might also get influenced and manage the entire process of clearing in an accurate manner and therefore take on misstatement in financial statements of DIPL.
However, critical analysis of the business operation of the firm DIPL clearly replicates the fact that unsuitable way of managing the entire task of implementing or applying the innovative solution for improvement of accounting system can lead to inherent risk. this essentially leads to assumption of precise business dealings and inappropriate way of dealing with the financial transactions of the firm lead to erroneous representation and material misstatement in financial assertions (Baylis et al. 2017).
There are diverse risks that might crop up owing to different fraudulent actions that take place in course of both preparation as well as presentation of pecuniary declaration of DIPL. Again, huge anticipations of sponsors outside that of the organization also lead to risk of material misstatements. For example, the financial statements present financial evidences and the company intends to present evidence that shows realisation of pre-determined performance objectives in the financial statements. This in turn can help the management of the company to draw more number of sponsors (Loconto 2017). Thus, this compels the management of the firm to overstate their revenue and understate their expends. This can help the management of the corporation to acquire higher amount of debt. Thus this raises the fraud risk of the company DIPL. Besides this, the calculated gross earnings as well as net revenue is said to have elevated. Nevertheless, the business case also reflects that DIPL has acquired loan amounting to 7.5 million from BDO Finance.
In addition to this, business case on DIPL also helps in understanding the fact a specific loan agreement has certain terms of contract that require certain level of current ratio of roughly 1.5 and debt equity ratio lesser than just about 1. Thus, it can be hereby mentioned that these facets have the need of maintaining specific financial ratio that can support the company to acquire credit (Graham 2015). Fundamentally, this can assist in different fraudulent activities and lead to reflection of financial condition
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Loconto, A.M., 2017. Models of assurance: Diversity and standardization of modes of intermediation. The ANNALS of the American Academy of Political and Social Science, 670(1), pp.112-132.
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