Analyzing The Financial Performance Of Double Ink Printers Limited And Its Impact On Audit Procedures

Background information and appointment of new CEO and internal audit

The analytical process that consists with the financial reports of Double Ink Printers Limited (DIPL) has been a motivational factor for bringing out their given audit plan.  The given plan needs to be considered as a key parameter while preparing their audit procedure.  It can be also inferred that with the assist of different analytical methods, it can be inferred that different financial experts and users interpret and use data for bringing out various decisions which would be considered as beneficial for the organization (Bunker 2015).

The following table interprets the financial ratios according to the given case study.

Table 1: Ratio analysis of DIPL for the last 3 years (2013-2015)

(Source: Created by Author)

From the above table, it can be inferred that the solvency ratio of the organization has increased in 2015 in comparison with the last two years. This further reflects that DIPL is using a lot of debt in their operations to generate profit.  However, the company needs to control the burden of debt in order to avoid bankruptcy.

 It can be also inferred that the gross profit ratio have declined during the past three ratios from 17.55 percent to 15.19 percent.  On the contrary, it can be also inferred that net profit ratio has increased from 6.077 to 6.83 in the year 2015. In addition to this, return on equity increased from 21.28 percent to 24.68 percent.

In terms of liquidity ratios, it can also be inferred that the current ratio of DIPL has increased considerably during the last 3 years.  This further reflects that the organization is effectively using their working capital cycle during the past 1 year in comparison with the last few years.

On the contrary, it is reflected that the quick ratio of the organization has declined in 2015 than 2014, from 0.94 to 0.84. This infers that the liquid assets remain almost the same during the last few years.

The above analysis has a considerable amount of impact on the given auditing procedure of DIPL.  It has been observed that the organization may face certain amount of risks based on the findings of the ratio analysis (Christopher 2015). Firstly, it has been observed that the profitability of DIPL remained stagnant for a longer period. This further reflects that the profitability may start falling in the coming years, which can be considered as a huge risk for the organization. In addition to this, the debt equity ratio is on the higher side, which reflects there are huge chances for the firm to become insolvent. Apart from this, the efficiency of the firm has also declined, which reflects the firm is failing to manage their current assets (Junior, Best and Cotter 2014)

Several inherit risks have been identified for the firm DIPL, which can be further evaluated with the help of the following table:-

Table 1:  Inherit risks of the organization

Meeting debt obligations- It is of great essence for DIPL to meet all their debt obligations in a timely manner and thus meeting the needs and requirements of their stakeholders. The organization took a loan amounting to 7.5 million from BDO finance limited, which further had an impact on their debt-equity ratio.  According to industry standards, current ratio needs to be 2:1 and debt equity ratio needs to be less than 1. There are huge possibilities that figures of current assets and retained earnings have been inflated in order to maintain the above two financial ratios.

Poor environment and allocation of work and inventory- It has been seen that there was no proper job description in DIPL and allocation of work was poor. Due to this reason, there are possibilities that total amount of inventories and existing stock can be inflated as there was no proper documentation system (Moroney et al. 2014)

Effect of debt obligations in the given audit plan- While conducting audit, it is important to analyze whether the amounts of current assets and debt are inflated or not. In addition to this, it is of utmost importance to balance the figures of current assets and current liabilities.

Effect of allocation of work and inventory on audit- While conducting audit, it is important to analyze the total amount of inventory on timely basis. In addition to this, order quantities must be matched with the total amount of order received, in order to minimize the risk of manipulation for DIPL (Louwers et al. 2015).

References

Bunker, R. (2015). Can We Plan Too Much?–The Case of the 2010 Metropolitan Strategy for Adelaide. Australian Journal of Public Administration, 74(3), 381-389.

Christopher, J. (2015). Internal audit: Does it enhance governance in the Australian public university sector?. Educational Management Administration & Leadership, 43(6), 954-971.

Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance services. McGraw-Hill.

Gurran, N., Norman, B., and Hamin, E. 2013. Climate change adaptation in coastal Australia: an audit of planning practice. Ocean & coastal management, 86, 100-109.

Junior, R.M., Best, P.J. and Cotter, J., 2014. Sustainability reporting and assurance: A historical analysis on a world-wide phenomenon. Journal of Business Ethics, 120(1), pp.1-11.

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

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

Moroney, R., Campbell, F., Hamilton, J. and Warren, V., 2014. Auditing: A Practical Approach. Wiley Global Education.