In this given question, it properly explains about analytical process that is present in the financial report for company such as DIPL. The financial report of company helps in developing a plan for audit activities (William, Glover and Prawitt 2016). The audit plan is used as a specific guideline that should be followed while undertaking the audit function. It is important for the assessor to check over costs of audit at reasonable level as well as assisting in reducing misunderstanding with the customers. Analytical approach should be used to the financial declarations for the firm DIPL that means to the process of dissemination of the information that are accessed from financial declaration of the business enterprise. The given process needs to be evaluated by utilizing a variety of mechanisms. On using the analytical approach, it is important to analyze financial declarations where various accountants and financial analysts collect information that helps in arriving at final decision-making activities (Becker, Stead and Stead 2016).
Analytical approach of common sizing mainly aims at evaluating the financial declarations to a common specific point. It further help in making the comparison with the financial statements for given period of time. It is the responsibility of the assessor to look at different line of items that are already mentioned in the financial report and check the reporting types (Soh and Martinov-Bennie 2015). For instance, it is all about how items are registered like net assets as well as net liabilities that goes along with owner equity as shown in the financial reporting and examining the digression on comparing to normal activities. Furthermore, benchmarking is one of the analytical procedures that are present at the time of analyzing plan of audit. In addition, variation of actual financial declaration from the benchmark aims at identifying deviation and cause for any of detected variance for determining actual problem.
Therefore, ratio analysis is one of the important tools that is used for essential analytical approach for comparing financial declarations and assessing the plan of audit activities.
|
Particulars |
2013 |
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 |
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:
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.
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance services. Pearson.
Arens, A.A., Elder, R.J., Beasley, M.S. and Jones, J., 2015. Auditing: The Art and Science of Assurance Engagements. Pearson Canada.
Becker, L.L., Stead, J.G. and Stead, W.E., 2016. Sustainability Assurance: A Strategic Opportunity for CPA Firms. Management Accounting Quarterly, 17(3), p.29.
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.
Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance services. McGraw-Hill.
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.
Kend, M., Houghton, K.A. and Jubb, C., 2014. Competition issues in the market for audit and assurance services: are the concerns justified?. Australian Accounting Review, 24(4), pp.313-320.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.
Marques, R.P., Santos, H. and Santos, C., 2016. Evaluating Information Systems with Continuous Assurance Services. International Journal of Information Systems in the Service Sector (IJISSS), 8(3), pp.1-15.
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.
Soh, D.S. and Martinov-Bennie, N., 2015. Internal auditors’ perceptions of their role in environmental, social and governance assurance and consulting. Managerial Auditing Journal, 30(1), pp.80-111.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic approach. McGraw-Hill Education.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download