Analytical Procedures In DIPL Financial Report For Audit Planning: Essay On Ratio Analysis, Inherent Risks, And Material Misstatement.

Application of analytical procedures to the financial report information of DIPL

The main type of the financial report of DIPL has been able to develop the audit plan. The planning of the audit has been followed with the time of undertaking of the same.  In general, the assessor in terms of maintaining the costs associated to audit at a reasonable stage. This has been further seen to assist in terms of maintaining the audit cost and assist in avoiding of misunderstanding of clientele. The financial declaration of DIPL is associated to the dissemination from the financial declaration from the firm (Kend et al., 2014).

Analytical approach of the common size has been based on common reference point and financial declaration. This has been further seen to help in the comparison of the financial statement with different periods based on different corporations. The assessors of this can further consider the different line items which have been mentioned in the financial report. For example, the registering process of the items such as net assets and net liabilities along with owner’s in the financial reporting of the company and infer the deviation from the normal reporting.

It has been further seen that ratio analysis can be considered as an appropriate analytical approach which can be used for the assessment of audit plan and financial declarations (William et al., 2016).

Explanation of the way the results influence planning decisions for the audit

 Table 1: Ratio Analysis

The main result of the planning decision has been further considered necessary for the evaluation of the results which has been seen to be influenced by the financial statements. The outcomes of the ratio such as current ratio of DIPL are seen to be calculated as 1.42 in 2013, 1.46 in 2014 and 1.5 in 2015. The profitability ratio has been further computed based on profit margin which has been discerned as 0.068 in 2013, 0.60 in 2014 and 0.06 in 2015. This particular factor is conducive in revealing the condition of net income which has been earned by the firm in compared to the net sales of DIPL. This is further seen to be conducive in understanding the expenses are low or high whether the management to requirement to cut down the budget and expend the same on firm. The comparison of the ratio in three year has been able to understand the relative position of firm in three periods and further analyse the factor which has led to undesirable and unfavourable condition of the corporation (Arens et al., 2016).

Identification of inherent risk factors that arise from nature of business operations of DIPL

The important factor has been seen to be based on auditing which comprise of the incidence associated to material misstatement in the financial declaration of certain concern. However, it can consider making forms of the systematic as well as unsystematic risks which has been further seen to reflect the way financial misstatements are taken into consideration for corporations. Despite of this, the risks associated may be seen to be based on both financial as well as non-financial factors which can be possible for the financial and non-financial factors.   These factors can further avert a specific corporation for reflecting a true as well as fair view of pertinent financial declarations. The identified risks can be further linked with the different risk correlated based on the correlated to omit the risks of diverse errors which is not possible for a particular bookkeeper. With essence of the risks diverse errors, the specific bookkeeping has inherent risk which may be seen to take place from the nature of operations of DIPL (Messier et al., 2014).

Explanation of the way the results influence planning decisions for the audit

Based on the given considerations made in the study, it can be made certain that there has been number of transactions which are related to accountants otherwise which has been not been seen with corporation DIPL. The sequential direct lead in terms of the inconsistencies particularly related to the ineffective planning of the sales activities. In addition to this, the financial declarations have been seen to reveal the fact which the firm has failed to accomplish the designated level of profit from the revenue based on sales.  In particular the management failure has been identified in terms of the specific requirements which have been further identified with consequent adjustment of the functionalities.

Apart from the workers, DIPL has escalated the overall risk. Due to the lack of proficiency and experience of the employees the inherent risk has increased substantially. This has been observed due to the competency of member of the staff. The non-proficient workforce can enhance the inherent risk to commit mistakes. The errors of the exclusion and the instances have been considered based on misstated in the pecuniary announcement.

The significant facts of the contribution towards the existing risks can be categorised based on sections specifically devised for the environmental concerns along with external facets, material misstatements in previous periods along with falsified exercises. Based on the evaluation of the given case it has been seen that DIPL has been able to reflect on the significant amount of inherent risks in the process of succession of CEO. In general CEO may be considered as a different candidate and other individuals. However, some of the inherent risks involves quality of procedure for selection and transition handling process. Hence, there are several risks associated for the commencement of the process without complying with the strategy, inadequate CEO involvement and the departure of candidates (Waldron, 2016).

Based on analysis of the case it is further revealed that the various types of implementations for novel IT procedure have generated certain problems. DIPL did not had sufficient number of staffs to handle the execution and carrying out of the reconciliation before the new arrangement prior to the ear end. The initial testing process has revealed that the transactions were not apportioned the correct time. This led to several incidents of material misstatements and ministers of other inherent risks for omission in specific financial declaration.

In addition to this the recording of cash receipts were seen to be done by professional’s expertise in finance we’re not able to handle the risks in an appropriate manner. The total member of the staff needed to follow the proper sequence for Accounts Receivable and registering the Accounts Receivable ledger for proper maintenance of the same. In addition to this the bank reconciliation also needs to be regarded in an appropriate manner. The registering of the revenues generated from the ebook and taking account of the reprint of textbooks may lead to diverse nature of inherent risks due to several complexities involved in the process.

Additionally, the evaluation process of raw material inventory was not seem to be suitable since present cost of the paper was significantly higher than the average cost.

Risk and way it might affect the risk of material misstatement in the financial report

The identified the natures of the inherent risks are associated to material misstatement.

Excessive pressure on employees and management: - In general due to excessive burden on staff members the bookkeeping gets affected. There has been certain attributes namely propensity to encounter issues associated to cash flow, low liquidity with were operating outcomes.

Integrity of the entire management:- DIPL lacks in terms of integrity and requisite and is also expected to prepare for the loss of reputation.

Unusual pressure on management: - in several cases the material misstatements leads to pecuniary declarations.

Nature of entity business: The leading growth process of DIPL has been considered with competitive scenario. However, these factors might affect the overall inherent risk involved in the business and audit planning structure (Arens et al., 2015).

Identification and explanation of two key fraud risk factors relating to misstatements arising from fraudulent financial reporting 

Some of the well-known explanations of the fraud risk associated to material misstatements have been listed below are as follows:

Reference 

Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2016). Auditing and assurance services. Pearson.

Arens, A. A., Elder, R. J., Beasley, M. S., & Jones, J. (2015). Auditing: The Art and Science of Assurance Engagements. Pearson Canada.

Kend, M., Houghton, K. A., & Jubb, C. (2014). Competition issues in the market for audit and assurance services: are the concerns justified?. Australian Accounting Review, 24(4), 313-320.

Messier, W. F., Glover, S. M., & Prawitt, D. F. (2014). Jasa audit dan assurance: pendekatan sistematis. Jakarta: Sa-lemba Empat.

Waldron, M. (2016). The Future of Audit. CFA Institute Magazine, 27(3), 55-55.

William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and assurance services: A systematic approach. McGraw-Hill Education.