DIPL is an Australian company and the main business process of the company is printing. Magazines and books are mainly printed by the company. Besides this, the printing of advertisements for the publishing and educational industry is also used to be done by the company. In addition to this analyzed the financial statement of the company and it is used to verify the legitimacy of the statements. The operations are done in the financial accounts for getting the attention of the shareholders. In this report, inherent risk factors are also being discussed. There is some case study have to follow for preparing this report.
The case study of Double Ink Printers limited describes the audit which is managed by the Stewart and Kathy. The business of DIPL is printing of books and magazines, advertising material for advertising, educational and publishing industries but it is based on the print-on-demand basis. Detailed information related to the business of DILP is given in case of study, in addition to this financial information of the company is also given in the report. It also analyses the ratio of the company to measure the performance of the company and also measure the financial condition of the company. This information is very useful as it plays a virtual role in auditing process and also helps in access the business`s information. Besides this changes in the board meetings and discussion in the annual meeting, and IT system, etc. has been described in this case study for a better process.
DIPL should follow the analytical procedure so that if any difference in last two years occurs can be easily analyzed. The company can carry out the analytical procedure by analyzing the ratios. In this report, the detail of the company i.e. financial statement and ratio analysis of the last three years are as follows:
|
Computation of ratio analysis |
||||
|
Liquidity ratio |
2013 |
2014 |
2015 |
|
|
Current ratio |
1.424851323 |
1.46655925 |
1.500731379 |
0.017751573 |
|
Quick ratio |
0.82797619 |
0.944834334 |
0.847272997 |
0.007768664 |
|
Working capital |
16,05,938.0 |
23,88,900.0 |
32,03,429.0 |
0.331580049 |
|
Profitability Ratios |
||||
|
2013 |
2014 |
2015 |
||
|
Operating Profit Margin |
0.100977727 |
0.089047255 |
0.08898715 |
-0.039581594 |
|
Net Profit Margin |
0.068957968 |
0.060779639 |
0.06838972 |
-0.002746837 |
|
Return on Capital Employed |
0.4 |
0.3 |
0.2 |
-0.160459244 |
|
Return on Equity |
0.257834973 |
0.212484827 |
0.24261746 |
-0.019673454 |
|
Return on Total assets |
0.182458623 |
0.144075478 |
0.113667738 |
-0.125673945 |
|
Debt equity ratio |
||||
|
Capital structure ratio |
2013 |
2014 |
2015 |
|
|
Debt- equity |
0.413114754 |
0.474816041 |
1.134444326 |
0.582025183 |
|
Interest coverage ratio |
40.94205904 |
40.1257067 |
4.78608308 |
-0.294367022 |
|
Efficiency ratio |
||||
|
Efficiency ratio |
2013 |
2014 |
2015 |
|
|
Receivable turnover ratio |
11.08401323 |
9.2532887 |
||
|
Creditor turnover ratio |
12.68542199 |
11.23585229 |
||
|
Inventory turnover ratio |
12.83396414 |
10.75765974 |
||
|
Assets turnover ratio |
2.614942828 |
2.066946288 |
In this report, several changes have been found in the last two-year into the company’s financial data. For earning the more profitable company has changed their plans and strategies and also have to make some changes ( Griffiths, 2016). Changes in the company can also lead the company for holding the market share in the market and also more progress.
After analysis the ratio of DIPL, it has been found that the financial factors have been influenced because the company has made the various changes. The liquidity ratio of the company indicates that there is an increment of 1.77% in DIPL’s current ratio. The changes in the company’s lead to the high turnover over the last few years (Oringel , 2012). Due to increase in the high turnover of the company’s and it also increased the working capital of the company. In addition to this company’s working capital was 16, 05,938 AUD that is being increased by 32, 03,429AUD in the year 2015. In addition to this quick ratio describe that company has managed the liquidity in a fast manner and also have the way to manage the capital of the company and solve out the all the doubts.
In this case study DIPL analysis the profitability ratio, that the profit of the company is reduced the last year because of the operational changes and changes in the external and internal being made in the company. The profit margin of the company is reduced by 3.95% in the year 2013, and the rate of the profit margin in this year is 1.009% while in the year 2015, the estimated rate is .88% (Dagwell, et al., 2012). In this financial condition of the company is also intrepid due to the factors related to the profitability ratio. After falling in the profitability condition of the company, it is been reprinted by ROE, return on total assets, Net profit margin and ROCE.
The efficiency ratios and the capital structure ratio has been studied for analysis the growth and performance of the company. In addition to this with the help capital structure ratio, equity ratio is being increased by 58.20%. Changes in the debt-equity ratio, due to fluctuations in the company’s liabilities and assets in last two years ( Thibodeau & Freier, 2013). In last year interest expenses, interest coverage ratio of the company is also decreased because of the high charges made on interest.
In this report, various ratios such as inventory turnover ratio, Assets turnover ratio, receivable turnover ratio, efficiency ratio and Creditor turnover ratio of the company are calculated so that the performance of the company can be evaluated its short-term obligation and working capital.
In this report, it has been determined that many changes are done in the business strategies, operations, and functions, several changes in this ratio have been taken place. It has become the difficult job for the auditors to access the changes occurs in the business (Warren & Reeve, 2017). It has been an analysis that the changes occur due to mistake and inaccuracies made by Jay and associates. It is the main responsibility of access the inaccuracies and mistake done by Stewart and Kathy.
Risk assessment is essential for the business, as though assessing the factors which can cause or has caused risk can be determined and the effects which can be caused by the risk can also be mitigated. DIPL contacted Stewart and Kathy for the auditing purpose (Wilson, 2015). It is requisite by Stewart and Kathy to pursue risk assessment for the company so that the aspects of risks could be evaluated and the decision could be made in context to the plans to eliminate or mitigate risk aspects. In the case study`s analysis, it can be assessed that inherent risk can be faced by DIPL in perspective to auditing compliances. The inherent risk factors are discussed below-
Inherent risk can ensue because of the financial statement prepared by the accountant deprived of considering the guidelines for preparing books of accounts (Oringel , 2012). In addition to this, inherent risk can also occur due to the fraudulent activities followed by the accountant for preparing financial statements of the company. The case study analysis reveals that the revenue of company has increased over last year ( Hoelzer, 2011). Moreover, some other aspects also signify company`s growth. On the other hand, the profitability of company has been shown less in the financial statement. Portraying less profitability can be a reason to save the amount from paying high tax return to the Australian government. For this reason, may be the company has started pursuing fraudulent activities to show the reduced profit amount in the books of accounts. So that the company may not have to pay higher tax amount. For that reason, it may be conceivable that false transactions have been recorded in the accounts book of the company (to represent decreased profit).
One of the other reason of portraying the company`s impressive performance and growth through the ratios is to attract or impress the shareholders or the investors to influence them; that company has the sound financial condition and the shareholders can get a high return on investment. This aspect can impact on the shareholders and can evoke them to invest more (Dagwell, et al., 2012). It has been evaluated that the interest charges are also increased through high rate. This aspect also led to one of the fraudulent activity practiced by the company. On the other hand, it might be possible that interest charges have been increased due to the huge amount of loan. Financial statement of the DIPL has become more complex due to such particular activities pursued by the company. The company has also used a high rate of depreciation over its assets (Belmont, 2011). Besides this, it has also been analyzed through the company`s case study, that employees were paid high wages; which was not worthy. Therefore, this can be determined that because of the misstatement in books of accounts inherent risk can occur in the company.
DIPL manages the functions or operations of its business in the Australia only. The company operates in the Australia individually. On the other hand, it is essential for the company to comply with the GAAP and IFRS`s guiding principles and rules for preparing accounts of books or financial statements; so that requirements at the international level could be achieved by the company (Greite, 2013). Through following such accounting standards and rules, the company may get favor from FDIC in relation to massive investments. This will help the company for acquiring more financial support and this amount can also be used to solve several problems or issues. DIPL`s case study denotes that company has not followed the rules and regulations for preparing the books of accounts. The noncompliance of such rules can raise risk for the company in terms of practicing business (Belmont, 2011). Thus, it is requisite for the company to follow the accounting standards so that authenticity could be maintained in the books of accounts.
Some of the factors which describe the misstatement in company’s financial statement are a measure to access the cause of the risk. Some of the factors are discussed below:
Interest amount- Company’s interest amount in the year 2013 was 84379.0 AUD, whereas in the year 2015 the interest amount was 808038.0 AUD. It means the changes occur in the amount of interest over two years is 285.87%. In addition to this going through the description provided in the context to company’s loan, it can be an analysis that in order to manage the capital structure and liquidity position, very huge amount of loan has been taken by the company (Belmont, 2011). Even though it also notice that the huge amount of loan interest is also at high rate and company has utilized this huge amount of loan in manage the tax return. Besides this company revenue has also been increased in comparison to last year, that is the reason that why the company has to pay high tax return to government of Australia. This is the reason the company has figure out the higher amount of interest to decrease the profit amount at the end of the final statement so that they can pay the less tax to the government of Australia.
Debt to equity ratio- the process of analysis of company’s debt to equity ratio is has been done. By going through analysis, process it has been a measure that in the year 2014 company’s debt to equity ratio was 0.47% and in the year 2015, this ratio increased by 1.13% ( Griffiths, 2016). In addition to this for starting a new project not huge much amount is required. This amount was shown to affect the stakeholders and government and also for the other stakeholder’s decision.
In this report, each and every aspect of the company’s financial factors is ducted by the auditors so that there is less possibility of fraud in related factors ( Fazal, 2011). Auditor has to follow the report over the process related to finance department process, purchase and inventory , cash receipts, e-book revenue process, printing process all these factors which are related to company’s key risk inherent factors also being analyzed by the auditor. Finally, these all information is being accessed from the financial statement and from BOD’s meeting and also from company’s new financial decisions.
Conclusion
In this report, it has been observed that company has practiced fraud and unethical activities. As the company has not followed the accounting standards and accounting principle while preparing the financial statement. The profit of the company is showing less due to saving the tax, in another hand they revenue of the company is showed the higher amount. These tactics are used by the company to intact the shareholders and investors so that investors can take more interest in investing more amount in the company. These types of fraud activate can become a big reason for inherent risk for the company.
References
Fazal, H., 2011. What is Audit risk?. [Online]
Available at: https://pakaccountants.com/what-is-audit-risk/
Griffiths, P., 2016. Risk-Based Auditing. s.l. CRC Press.
Handsworth, A., 2012. Risk Management Audit Guide. s.l. Xlibris Corporation.
Hoelzer, D., 2011. Audit Principles, Risk Assessment, and Effective Reporting. s.l.:EnclaveForensics.
Perler, J. & Howard M. , S. M., 2010. Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, s.l. McGraw Hill Education.
Thibodeau, J. & Freier, D., 2013. Auditing and Accounting Cases: Investigating Issues of Fraud and Professional Ethics. s.l.:Wiley.
Belmont, D. P., 2011. Managing Hedge Fund Risk and Financing: Adapting to a New EraSep. s.l.:Wiley.
Dagwell, R., Lambert, C. & Wines, G., 2012. Corporate Accounting in Australia. s.l.:Pearson.
. F., 2012. Business Ethics and Corporate Governance. s.l.:Pearson Education.
Gramling, A. A., Johnstone, . M. & L. E., 2012. Auditing. s.l.:Cengage Learning.
Greite, S., 2013. The Development of the Australian Accounting Standards After the End of the G4+1. s.l. Grin Verlag.
Johnstone, K., Gramling, A. & Ritte, L. E., 2013. Auditing: A Risk-Based Approach to Conducting a Quality Audit. s.l.:Cengage Learning.
Kimmel, P. D. & Weygandt , J. J., 2013. Accounting Principles. s.l.:s.n.
Oringel , J., 2012. Effective Auditing For Corporates. s.l.:A&C Black.
Warren, C. S. & Reeve, J. M., 2017. Accounting. s.l.:South-Western College Pub.
Wilson, R. M., 2015. Researching accounting education. s.l.:Routledge.
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