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Question 1: As an auditor, you are conducting your preliminary analytical procedures based on the background information for DIPL contained in the case. Apply analytical procedures to the financial report information of DIPL for the last three years. Explain how your results influence your planning decisions for the audit for the year ending 30 June 2015.

Question 2: You are conducting your risk assessment of DIPL, as part of the planning for your audit for the year ended 30 June. Identify two inherent risk factors that arise from the nature of DIPL’s business operations. Explain why it is a risk and how it may affect the risk of material misstatement in the financial report.

Question 3: As part of your audit of DIPL for the year ended 30 June 2015, you are considering the risk that fraud may have occurred (a) Based on the background information for DIPL contained in the case, identify and explain two key fraud risk factors relating to misstatements arising from fraudulent financial reporting to which DIPL may be susceptible. (b) Explain how the risk factors identified in (a) above would affect the conduct of the (a) audit. 

Value of investigative strategy in audit planning

1. In the technique for setting up the audit plan of Double Ink Printers Limited (DIPL), the investigative strategy related with financial data gives gigantic esteem. Actually, audit plan conveys the required bearings and rules to the evaluators amid the audit operations. Exactly, audit plan empowers the evaluators in keeping up the cost of audit in a specific point of confinement for anticipating misconception with the audit customers (Alam 2014). The logical approach identified with the financial data of DIPL indicates the technique for spreading financial data from the different financial assertions of the organization. The strategy for breaking down the financial data of the organizations could be brought out through a few systems.

With the assistance of diagnostic approach for evaluating the financial data, the accountants and financial investigators of the organization s could use such data for undertaking distinctive financial and accounting choices (Baylis et al. 2017). The normal size explanatory approach empowers in the strategy for dismembering the financial presentation of the organizations from the regular perspectives. One of the essential advantages is that it helps in expanding support in differentiating the financial reports from different financial courses of events.

The accountants and financial experts could use diverse lines of things from the financial reports and they could confirm their base of planning for the organizations. For example, the enlistment methodology of various financial and accounting things in the financial reports, for example, net liabilities, resources, proprietor's value and others could be viewed as combined with appraisal of straying from the typical situation (Brawley et al. 2015).

Benchmarking is the primary diagnostic procedure of financial data and this strategy could be used for assessment of the audit plan of the organization. The benchmarking procedure helps in distinguishing the changes in the financial reports of the organizations and the genuine explanations for the events of these differences could be learned by recognizing the underlying driver of these fluctuations. Other than the procedure of benchmarking, ratio investigation is declared as a noteworthy scientific technique for financial data of the organizations. Ratio examination is colossally advantageous in differentiating the financial explanations of at least two organizations for setting up the arrangement of audit (Chambers and Odar 2015).

The embraced scientific methodologies of the organization s in assessing the financial data has huge impact on the improvement of the procedure identified with audit arranging and this is vital to spread financial data among the diverse bureaus of the organizations. The accompanying ratios have been considered for this reason:

Analyzing financial data of DIPL

Ratios

2013

2014

2015

Current Ratio

1.42

1.47

1.50

Quick Ratio

0.83

0.94

0.85

Gross Profit

17.55%

16.13%

15.20%

Net Profit

6.90%

6.08%

6.84%

Return on Equity (ROE)

25.78%

21.25%

24.26%

Return on Assets (ROA)

18.25%

14.41%

11.37%

Debt to Equity

10.25%

8.00%

67.65%

Debt to Capital

7.25%

5.42%

31.69%

Interest Coverage

44

43

5

Clarifications:

RATIOS

EXPLANATIONS

AUDIT IMPACT

Current Ratio

Current ratio has demonstrated upward pattern driven by change in current resources from FY13 to FY15.

From the DIPL case, there are a ton of things that are to be viewed as in order to help with settling on arranging choice for the review. Something that must be considered is the installment of inventories utilizing the money of the nation from which the crude materials have been requested from. There is the danger of change in so far as freedom of inventories is concerned on the grounds that every single Asian nation don't utilize one cash. An arrangement for vacillation should there be put aside for the other money related year.

Quick Ratio

This ratio has stayed pretty much level as the proportionate changes in both current resources and liabilities have been comparative.

The ratio is driven by the estimation of the present resources and liabilities and as we realize that the estimation of some present resources is unpredictable because of market connected esteem or acknowledgment estimation of the advantages subsequently the ratio can be controlled.

ROE

The ratio has declined because of the way that according to bookkeeping strategy the net benefit must be added to the save of the organization thus value base has expanded and the ROE has declined.

As respects the income that is gotten for capacity of E-Books, the same ought not be perceived when solicitations for the charges are sent however when the same is gotten. This is on account of DIPL dangers inability to pay inside time by the distributing organizations. This subsequently implies monies got from capacity should just be perceived upon the genuine installment.

ROA

ROA of the organization has declined. The purpose behind the same could be the way that it has obtained resources of NPL, which has not contributed much to incomes, subsequently the denominator has expanded while numerator has not expanded proportionality thus the ROA has gone down.

Concerning the journal and medical books by NPL distributing organization getting to be plainly old in view of the new innovation, the organization should move quickly and end the agreement they have with NPL in light of the fact that they have not purchased any offers in the organization but rather just operation.

Net profit Margin

Net income margin has stayed stable by virtue of comparative development in the incomes and net income. This is characteristic of the way that the productivity of the organization has not expanded.

DIPL ought to likewise not depend on the straight line strategy for devaluation in ascertaining the deterioration of their advantages yet ought to depend on a technique that considers that after consistently the estimation of a benefit changes and thusly deterioration ought to be computed from the present estimation of the benefit and such strategies incorporate total of-year technique.

2.

RISK

REASON OF INHERENT RISK

RISK OF MATERIAL MISSTATEMENT

Inventory Risk

1.         This hazard is characterized to be a hazard or the likelihood which that because of value change/cash rate vacillations.

2.         The danger of physical harm and additionally distorting of valuation of the same

3.         Complexity of the stock administration framework

1.         Valuation of stock will not be precise as the figures might be exaggerated or downplayed

2.         Due to many-sided quality of the exchange, the odds of blunders and danger of material error increments

Acquisition Risk

Acquisition is done on the premise of some conceivable vital arrangement and projections and the same can turn not be valid because of changes in ecological components.

1.         The goodwill is made by the value that is paid in overabundance to the incentive and in addition intangibles are made and inspectors need to watch out for the same.

2.         As, the NPL esteem has out of date and the foreseen misfortune is characteristic and not considered in this said obtaining so it has made a potential danger of material error.

Certain risk components could be raised from the business operations of DIPL. As per the contextual investigation, the administration of an organization has neglected to enter different business exchanges of the organization. This method has coordinate organization with the irregularities in the arranging of various showcasing and deals exercises of the organization (Earley et al. 2016). The general financial investigation did with regards to DIPL states that the organization has neglected to finish the focused on level of benefit from the general deals income. The essential reason is the insufficiency and wastefulness of the administration of the organization in business operations. In this manner, it could be watched that the organization has neglected to gage the impact of various miniaturized scale and full scale financial components having sway on the business operations of DIPL like political, financial and social elements. Consequently, it could be expressed that the lower income and overall revenue of the organization has brought about inalienable dangers (Graham 2015).

Additionally, the staffs of DIPL have expanded quickly and thus, the innate risk has expanded too. The inalienable risk level of the organization rises in view of the absence of polished skill and experienced capability of the staffs. This is on the grounds that the accomplishment of a business is dependent to a great extent on the execution of its staffs (Homb et al. 2014). Because of such naiveté and wastefulness of the workforce of DIPL, there is more noteworthy possibility of intrinsic dangers, since the representatives will undoubtedly lead botches. In view of the given instance of DIPL, the issues could be found in the progression procedure of CEO of the organization. Because of this, such process has brought about ascent in natural dangers of the organization. The primary intrinsic risk could be seen in the inadequate strategy for choosing the CEO progression of the organization.

Other than this, it could be watched that DIPL does not have adequate staffs for dealing with its business operations. This reason has brought about ascent in characteristic dangers in the general business working of DIPL. Subsequently, from the above assessment, it could be watched that these are the essential reasons of the ascent in natural dangers in the business operations of DIPL (Jones and Beattie 2015).

It has been gathered that there is high measure of workload on the representatives of the organization. The expanding workload brings about poor accounting of the organization and this issue additionally brings about various issues of income, insufficient working outcomes incapable solvency and liquidity position of the organization. Other than this, the danger of blunder could be portrayed in the financial articulations because of absence of compelling understanding. In this unique situation, the administration of DIPL needs to assume a compelling part. It has been watched that the DIPL administration needs responsibility and uprightness and because of this reason, they are experiencing the worry of losing notoriety in the business group. The more noteworthy motivating force structure identified with administration shapes extra weight on administration and it brings about material misquotes in the financial reports (Levy 2015). 

Benchmarking and ratio analysis for audit planning

3. a) In the present business organizations, extortion risk is pronounced as the primary risk with regards to the same. Due to the event of such fake risk, the business organizations frequently acquire serious losses in its business resources (Martin, Sanders and Scalan 2014). In greater part of the circumstances, the essential disappointment could be seen among the workforce and such disappointment frequently constrain them to participate in different sorts of fakes in organizations. Another essential reason of extortion is the desire of different financial specialists of the organizations. The organizations regularly make guarantees for accomplishing a particular financial execution that adds to more prominent misrepresentation level (Nalewaik and Mills 2016).

FRAUD RISKS

IDENTIFICATION OF FRAUD RISK

AUDIT IMPACT OF FRAUD   RISK

1.      The first hazard distinguished here is the planned distortion of financials records.

2.      The second hazard distinguished here is of misappropriation of assets.

•           There have been many occasions where the settled installment have been postponed

•           There are many negative contract that can call for distorting

•           Performance evaluation has been made on the premise of offers and benefit rate subsequently there is motivating force for workers to distort

•           Process needs to more exhaustive in type of experienced individuals and additional time gave for the same

•           There is need legitimate check for deals figures

•           More distrust is called for

Types of Risk

Identification

Fraud risk-

In the setting of the business operations of DIPL, the fundamental risk that could happen from its business exercises is the inclusion of the staffs in different sorts of fake exercises. This could happen because of disappointment of the workers. As per the given instance of DIPL, it could be watched that there is gigantic weight from the piece of the leading body of the organization to embrace another arrangement of accounting. The selection of this new arrangement of accounting builds up a substantial weight on the workforce of the organization and such weight brings about extortion. Consequently, it could be expressed that for adapting up to the compromise weight, the staffs may embrace false exercises, which would prompt inaccurate treatment of the general system bringing about material errors.

As per the contextual investigation, it could be watched that the system of wasteful treatment of the usage of new data innovation brings about insufficient treatment of couple of essential financial and accounting exchanges toward the complete of the year. This general procedure may bring about loss of material misquotes and financial data. Due to such freshness and wastefulness of the workforce of DIPL, there is more prominent shot of innate dangers, since the representatives will undoubtedly direct oversights. In light of the given instance of DIPL, the issues could be found in the progression procedure of CEO of the organization. Because of this, such process has brought about ascent in characteristic risks of the organization. The fundamental inalienable risk could be seen in the ineffectual strategy for choosing the CEO progression of the organization. It has been watched that the DIPL administration needs responsibility and uprightness and because of this reason, they are experiencing the worry of losing disrepute in the business group.

Procedure of financial reporting-

Another significant risk is related with the strategy of financial detailing. The more serious risk of incapable financial statements could be seen, if extra financial desires could be seen from various partners for the financial revelations. This is valid in instances of declaration from the administration of the organization to accomplish specific focus of execution and specific focus of the destinations for obligation procurement. In light of the financial reports of DIPL, it could be watched that there is ascend in income of the organization from 2013 to 2015. Other than this, there is ascending in net wage and net salary of the organization. In light of the contextual investigation, it could be expressed that DIPL has obtained a credit of 7.5 million from BDO Finance in 2015.

As indicated by the contextual investigation, it could be watched that as per the understanding of advance, DIPL is required to keep up a present ratio of 1.5 and obligation to-value ratio underneath 1. The necessity of this specific game plan may be to create weight on the organization for reimbursing the credit as per the concurred course of events. These necessities could bring about forged exercises, since DIPL may control the financial proclamations for bogus delineation of the financial state of the organization. On the off chance that DIPL is not ready to keep up the required benchmark, the organization would not be qualified to get credit from BDO Finance (Pitt 2014).

b) In light of the given case, it could be watched that the procedure of valuation of the crude materials of the organization in view of normal cost is not suitable and viable, since the present paper cost is over the normal cost. The essential risk in the discovery of deceitful exercises of the staffs for executing new arrangement of data innovation could be recognized by checking the assignments in different expressions of occupations. Other than this risk, the risk related with the procedure of financial announcing could be distinguished through assessment of the diverse financial reports and explanations of the organizations with respect to the accountant s and financial auditors through various control and expository instruments. Such procedure of checking is required to be led in a convenient way (Warren 2014). 

Reference List

Alam, I.U., 2014. Effectual compliance audit of vendors development.

Baylis, R.M., Burnap, P., Clatworthy, M.A., Gad, M.A. and Pong, C.K., 2017. Private lenders’ demand for audit. Journal of Accounting and Economics.

Brawley, S., Clark, J., Dixon, C., Ford, L., Nielsen, E., Ross, S. and Upton, S., 2015. History on trial: Evaluating learning outcomes through audit and accreditation in a national standards environment. Teaching and Learning Inquiry: The ISSOTL Journal, 3(2), pp.89-105.

Chambers, A.D. and Odar, M., 2015. A new vision for internal audit. Managerial Auditing Journal, 30(1), pp.34-55.

Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), pp.59-74.

Decaux, L. and Sarens, G., 2015. Implementing combined assurance: insights from multiple case studies. Managerial Auditing Journal, 30(1), pp.56-79.

Duncan, B. and Whittington, M., 2014, September. Compliance with standards, assurance and audit: Does this equal security?. In Proceedings of the 7th International Conference on Security of Information and Networks (p. 77). ACM.

Earley, C.E., Hooks, K.L., Joe, J.R., Polinski, P.W., Rezaee, Z., Roush, P.B., Sanderson, K.A. and Wu, Y.J., 2016. The Auditing Standards Committee of the Auditing Section of the American Accounting Organization 's Response to the International Auditing and Assurance Standard's Board's Invitation to Comment: Enhancing Audit Quality in the Public Interest. Current Issues in Auditing, 11(1), pp.C1-C25.

Graham, L., 2015. Internal Control Audit and Compliance: Documentation and Testing Under the New COSO Framework. John Wiley & Sons.

Homb, N.M., Sheybani, S., Derby, D. and Wood, K., 2014. Audit and feedback intervention: An examination of differences in chiropractic record-keeping compliance. Journal of Chiropractic Education, 28(2), pp.123-129.

Jones, G. and Beattie, C., 2015. Local government internal audit compliance. Australasian Accounting Business & Finance Journal, 9(3), p.59.

Levy, M., 2015. Protecting customer data: with personal information at risk, internal auditors must provide assurance for the many facets that make up data security. Internal Auditor, 72(4), pp.32-37.

Martin, K., Sanders, E. and Scalan, G., 2014. The potential impact of COSO internal control integrated framework revision on internal audit structured SOX work programs. Research in Accounting Regulation, 26(1), pp.110-117.

Nalewaik, A. and Mills, A., 2016. Project Performance Review: Capturing the Value of Audit, Oversight, and Compliance for Project Success. CRC Press.

Pitt, S.A., 2014. Internal audit quality: Developing a quality assurance and improvement program. John Wiley & Sons.

Warren, P.D., 2014. Closing the gaps in third-party risk management: internal audit can add value by assessing risk around the organization's business relationships. Internal Auditor, 71(1), pp.37-42.

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