PACC6002 Auditing And Assurance Services

Table: Ratio Analysis of DIPL

(Source: Created by Author)

In this question, it mainly explain the results of the planning that had been done at the time of audit planning that influences the results of the analytical approach that is adopted for getting access to information from the financial statements (Simnett, Carson and Vanstraelen 2016). Ratio analysis helps in getting information about the financial position of any business organization. Profitability ratio is one of the ratios that represent the profitability margin as well as profits earned for organization and looks at the overall performance of firm. The profitability ratio of DIPL for three years starting from 2013 to 2015 is 0.068, 0.60 and 0.06. Next is the current ratio that helps in assessing the liquidity position of DIPL for three consecutive years and arrives at 1.42 (2013), 1.46 (2014) and 1.5 (2015). The ideal current ratio is 2:1.

Solvency ratio is calculated for DIPL for three consecutive years and it arrives at 0.62 (2013), 0.44 (2014) and 0.21 (2015). Comparing the results of ratio for three consecutive years help in getting access to overall cash flow that remains adequate for meeting both short-term as well as long-term liabilities for DIPL

It is the responsibility of the assessor to understand the relative position of the firm for three consecutive years as well as analyzing the factors that leads to undesirable or unfavorable condition of business enterprise (Marques, Santos and Santos 2016).

In this particular question, it is required to identify two inherent risks that are faced by DIPL in their business operations (Louwers et al. 2015). The material misstated figures are present in the financial declarations of business and this is one of the significant factors at the time of conducting audit as well as attracts serious concern. It is important to identify the financial declarations as mentioned in the financial statements that get accustomed to various types of systematic and unsystematic risks. These statements portray true and fair view of financial statement of business that can be either financial or non-financial. It is important for the assessor for evaluating different types of risks (Becker, Stead and Stead 2016).

Inherent risk is one of the risks that leads to significant errors that result from activities, operations as well as environment and nature of accounts. There are various types of risk that have significant impact on the financial statements. These types of risk relates to identifying the risk that cannot be predicted by the bookkeepers after correlating to omission as diverse errors (Kend, Houghton and Jubb 2014).

From the case study, it is noted that the accounts had omitted numerous transactions that was overlooked by DIPL management. There had been ineffective planning of sales as well as marketing activities that lead to inconsistencies. It is noted that analysis of financial declarations of DIPL favors the level of profits that is generated from revenue. Management can face the failure that needs adjustment in the functionalities as well as identification of requirements that is essential for maintaining the desirable profits. The business faced failure and they need to identify macro as well as micro economic factors in terms of social, political and others. DIPL had poor sales figures that can be seen in the inherent level of risk and leads to risk at the time of analyzing the financial declarations (Becker, Stead and Stead 2016).

There are different factors that lead to inherent risk into various sectors. Business enterprise can have material misstatement because of falsification of different items as well as external factors that concerns environment (Junior, Best and Cotter 2014).

There is various identified risk that need to be taken into consideration as susceptibility for given assertion in association with material misstatement. Some of the risk is as follows:

• One of the identified inherent risks is excessive pressure on employees as well as management. It is noted that excessive workload on members of the staff members of business that leads to poor bookkeeping (Eilifsen et al. 2013). It gives rise to certain attributes for encountering cash flow issues as well as poor operating outcomes that goes along with poor liquidity.
• One of the identified inherent risks is risk of errors or misinterpreted errors. Error or misrepresentation hampers intricacy as well as reliability.
• One of the identified inherent risks is unusual pressure on management. It may take happen that management get incentives for their work and it is misstated in the pecuniary declarations.
• One of the identified inherent risks is integrity of the entire management. DIPL management lack requisite integrity and expects to remain prepared for the loss of reputation in the overall business community.
• One of the identified inherent risks is nature of entity business. The business operations at DIPL lead to growth to major economic along with competitive circumstances. In addition, there are various factors that lead to overall inherent risk of business entity that analyze audit planning structure in the most appropriate way (Arens et al. 2016).  

An operating business entity may face substantial loss because of their assets that result from fraudulent activities. In addition, fraud in business takes place when workers are not satisfied and that leads to excessive workloads. Furthermore, business enterprise face high fraud risks because of the management as well as pressure from investors who reports related financial outcomes for achieving specific target (Cohen and Simnett 2014).

In this case study on DIPL, the company in real faces risk that take place from the nature how they operate and instigate the workers for engaging in fraudulent activities because of high level of dissatisfaction. It is because of the novel accounting system that had given rise to excessive workload as well as work pressure on the workers. DIPL faces fraudulent activities that give rise to excessive pressure on employees at the time of carrying out the installation process of IT system (Arens et al. 2015).  

It is the responsibility of the auditor to identify the risk that is associated with the implementation of novel IT accounting system for monitoring the activities at various levels. It is because of high cost of paper than its average costs, it leads to the process of valuation of raw materials as adopted by DIPL (Becker, Stead and Stead 2016). The auditors are responsible for carrying out ways for evaluating financial statements as well as monitoring various mechanisms for specific period. Therefore it helps in detecting the risks that are properly mentioned in the financial statements of any business enterprise.

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