Analyzing Financial Statements And Identifying Inherent Risks For DIPL

Implementation of analytical procedures to monetary assertions of firm DIPL

Proper implementation of analytical procedures to different pecuniary assertions of the firm DIPL can support the process of improvement of the audit design. Fundamentally, audit plan can reflect specific directive that need to be tracked during a specific time of executing the audit practise. Fundamentally, stratagem of assessment also aids auditors in backing up audit expenses at sensible stage and aids in illustrating misapprehension together with miscommunication with diverse customers of specific firm.

Inspective tactic of common sizing backs evaluation of financial assertions in a specific manner. This way of analytical procedure also aids management of firms to work on carrying out comparative evaluation of economic assertions of firms from the perspective of different periods (different phases of time) or else from the perspective of different business concerns. Appraisers can also tell about different categories otherwise classes of elements recognized in the financial statements and help in examining the manner of disclosing diverse economic pronouncements (Chou 2015). As such, the mechanism of considering diverse elements of economic statements for example, net assets as well as liabilities together with shareholders’ equity (Simnett et al. 2016). Nonetheless, modification in the financial statements considered from a specific point of view backs the development of the system of identifying the aberration, thus, this aids the process of analysis of the reason behind the deviation for gaining a deep understanding as regards the main intent (William Jr et al.  2016). In essence, this is mainly because this technique can be appositely executed for analysing financial reports and all at the same time analysing comprehensive idea of financial analysis.

Specific outcomes of planning for preparation as well as presentation of audit can be exclusively effected by the exploratory tactic undertaken for the purpose of translation as well as making out information from different reports published by the firm (William Jr et al.  2016). For instance, results of the analysis of key financial ratio enumerated based on pecuniary reports is hereby tabulated below:

Particulars	2013 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2014	2015
Profit margin	0.068	0.60	0.06
Solvency ratio	0.62	0.44	0.21
Current ratio	1.42	1.46	1.50

Critical evaluation of the financial reports of the firm DIPL helps in understanding the financial health as well as financial condition of the firm. The above table reflects the profitability condition of the firm suing the profit margin ratio. Profit margin ratio is documented to be 0.068 during FY 2013, while this ratio increased to around 0.60 in the FY 2014 and further escalated to o.06 during the subsequent year. This reflects an improvement in the financial condition from the perspective of profitability. Again, the solvency ratio documented to be 0.62 during the FY 2013 declined to around 0.44 in 2014. Furthermore, this ratio also decreased to about 0.21 in FY 2015. Current ratio recorded to be 1.42 in 2013, 1.46 in FY 2014 and 1.50 in FY 2015. Thus, significant financial ratio assessment aids in comprehending whether disbursement of the entire business are properly effective and whether all-inclusive costs of the firm is remarkably high. In accordance with the present business case, it can thus be stated that audit of financial reports of the firm can hereby help in examining the assets, reserves as well as possessions of the firm. This also helps in recognizing the pattern in which the firm can carry out necessary actions to limit any type of adverse happenings (Simnett et al. 2016).  

Detailed discussion of the way economic fallouts can affect audit process

2: There are different categories of risk recognized in the process of audit and can be related to material misstatements in financial reports. Even so, it can be mentioned here that there remains different categories of unsystematic risk that can pull the attention to different types of risks recognized from financial proclamation of business concerns. Besides this, there also exists miscellaneous categories of risks that can also affect the business operations and thus needs to be avoided by firms (Messier et al. 2014). Fundamentally, this can assist in indicating both true and fair view of different classes of economic announcements. Inherent risks might occur in this case. This inherent risk is the risk that essentially occur owing to error or else omission in a pecuniary reports because of a feature excluding control failure. However, in a monetary assessment, inherent risk is utmost probable to happen when dealings are intricate, or in circumstances that need a high magnitude of judgment as regards financial approximations. The auditor might plausibly find it very hard to detect the certain risks. There also exists certain risks that occur because of exclusion of certain factors together with certain faults or mistakes that are unlikely to be committed to be committed by different expert accountants (Louwers et al.  2015).

The table below presents different types of inherent risks that might be faced by the business concern DIPL along with detailed illustration of the same.

Risk	Explanatory
Inherent Risk	-Detailed evaluation of the business case on the operations of DIPL reveals the fact that risks might stem owing to exclusion of different business transactions by proficient as well as certified accountants. Examination of financial declarations helps in identifying the fact that the corporation has inevitably failed to attain a preferred amount of profit and attain revenue targets from the sales (Simnett et al. 2016). However, this might occur on account of sheer failure of the management and the board to perceive certain necessities, evaluate different macro and micro issues involved in the environment of the business. This essentially includes the socio- economic along with political factors present in the business environ of the company DIPL (William Jr et al. 2016). Thus, this can be witnessed from lower amount of sales and leads to events of risks. -The workforces also augmented the inherent risks. Critical analysis of the business case also helps in understanding the fact that lack of efficiency and experience of the employees also leads to incidence of inherent risks. The non-proficient employees can also escalate the overall inherent risks by committing different slips and errors (Simnett et al. 2016). For instance, imprecision might owing to exclusion and this can eventually lead to falsified presentations in the financial statements. There are different environmental facets that too become the root cause of inherent risks. This primarily takes place due to rapid transformations in business environs, stiff competition as well as inadequacy of capital (Simnett et al. 2016).
Inherent Risk	Detailed analysis of the business case on DIPL aids in gaining deep understanding regarding the fact that possibility of occurrence of inherent risks exists in the process of undertaking CEO succession (Messier et al. 2014). Therefore, a proper exercise of assessing ease of change also covers inherent risk involved in different operations. Therefore, initiation of exercise without adhering to specific strategies, commencement of certain operations late, incorrect connection with the chief executive officer and nomination of CEO also may lead to incidence of inherent risk (Louwers et al. 2015). Also, registering cash proceeds of the firm by different finance professional of DIPL too can lead to incidence of risk (Knechel 2016). Carrying out detailed cataloguing of acquired sales proceeds from definite e-book, considering reissuance of texts or else guidebook in the upcoming period can add to the possibility of occurrence of inherent risks as a upshot of the complexity involved in the technique (Knechel and Salterio 2016).

Possible reasons behind occurrence of inherent risks related to material misstatements in the financial pronouncements of the firm include:-

• Too much work related stress and overload of work on employees along with the management of the firm
• Risk of carrying out tasks by professional accountants in a faulty or erroneous manner that might lead to misrepresentation in the financial statements (Elder et al. 2011)
• Trustworthiness of the complete management and board (Glover et al. 2016)
• Strain on the entire management of the firm
• Features and nature of functionality of operations of the business concern (Edgley et al.2015)

3: Fraud risks can essentially lead to loss of assets and reserves of the corporation DIPL. In essence, discontentment of employees owing to excessive stress of work can direct employees to contain different fraudulent arrangement (Arens et al. 2016). In addition to this, expectancies of administration of corporation as regards financial results and to achieve a certain level of performance can also lead to occurrence of different incidence of fraud (Chou 2015). Added to this, there too occurs the necessity to communicate financial result that in line can help in evading risks reflecting made-up affirmations (Baylis et al. 2017).

Recognition of Risk	Illustration
Fraud Risk	Analysis of the business case on DIPL helps in understanding the fact that risks in business might crop up owing to involvement of discontented workers in diverse deceitful tasks. Assessment of functionalities of the business firms helps in laying stress on the fact that there exists excessive strain on workers to adopt the task of implementing advanced and progressive IT prompted accounting system (Chou 2015). However, this can lead to fraudulent actions and manage the clearance tasks in an appropriate manner. Thus, this can help in carrying out misstatement in financial statements (Arens et al. 2016). Analysis of the case also helps in understanding the inappropriate way of managing the entire course of executing the action of establishing innovative accounting plan and give way to unfitting suppositions regarding explicit corporate dealings during the end of the year (Arens et al. 2016). Yet again, this also reveals the manner towards incurring loss on account of material misstatement along with fraud risk.
Fraud Risk	Analytical evaluation of business case on DIPL discloses the fact that a totally different event of risk might perhaps take place on account of different fraudulent actions (Baylis et al. 2017). This mainly occurs owing to events involved in the process of arrangement together with presentation of different financial pronouncements. Mainly, once there exists huge anticipation from large number of outside sponsors regarding publicizing precise financial suggestions and realizing pre-determined performance goals (Baylis et al. 2017). This too leads towards risks of committing material misstatement in the financial assertions of the corporation. Furthermore, the attainment of the pre-determined goals to achieve the necessities to get credit and gather debt also involves high level of risk of incorrect financial statement (Christensen et al. 2016). Even so, financial assertions as regards specific financial state of affairs of the concern also suggests about profit of the business concern (Christensen et al. 2016). This too helps in identifying the fact that the business concern has increased the entire proceeds of the corporation during a specific period of time that is necessarily between financial year 2013 and 2015. Besides this, the calculated sales revenue (gross) along with the sales revenue (net) can also be observed to have increased. Nonetheless, this current business case replicates that DIPL has secured loans amounting to 7.5 million from BDO Finance. This loan agreement also has certain contract terms that calls for the need of satisfying a certain level of current ratio of nearly 1.5 plus debt equity ratio of lower than almost 1. Thus, it can be hereby inferred that these identified facets require the corporation to maintain a certain financial ration that can help in acquiring credit (Duncan and Whittington 2014). This too can lead towards diverse fraudulent actions and give way to inappropriate replication of financial condition.

Consistent with the given business case, it can be hereby mentioned that exercise of approximation of inventory of specifically raw material at precise average cost was not proper as the charge of paper was substantially beyond the average cost (Edgley et al. 2015). In addition to this, risk of recognizing fraudulent deeds involved in executing accounting arrangement using IT in tasks of book keeping can be presumed by observing diverse arrangements at different phases (Duncan and Whittington 2014). At the inception, the risk associated to the registering economic assertions can be recognized by undertaking inquiry of financial assertions by assessors, outlining schemes of control directly.

References

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

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.

Chou, D.C., 2015. Cloud computing risk and audit issues. Computer Standards & Interfaces, 42, pp.137-142.

Christensen, B.E., Glover, S.M., Omer, T.C. and Shelley, M.K., 2016. Understanding audit quality: Insights from audit professionals and investors. Contemporary Accounting Research, 33(4), pp.1648-1684.

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.

Edgley, C., Jones, M.J. and Atkins, J., 2015. The adoption of the materiality concept in social and environmental reporting assurance: A field study approach. The British Accounting Review, 47(1), pp.1-18.

Elder, R.J., Beasley, M.S. and Arens, A.A., 2011. Auditing and Assurance services. Pearson Higher Ed.

Glover, S.M., Prawitt, D.F. and Messier, W.F., 2016. Auditing and Assurance Services: A Systematic Approach 10th.

Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.

Knechel, W.R., 2016. Auditing: Risk and assurance. Routledge.

Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.

Messier, W.F., Glover, S.M. and Prawitt, D.F., 2014. Auditing and Assurance Services: A Systematic Approach; Diterjemah oleh Denies Priantinah, Linda Kusumaning Wedari, 2014. Salemba Empat. Jakarta.

Simnett, R., Carson, E. and Vanstraelen, A., 2016. International Archival Auditing and Assurance Research: Trends, Methodological Issues, and Opportunities. Auditing: A Journal of Practice & Theory, 35(3), pp.1-32.

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