3not be revisited. Misstatements in the financials can be of various types like specific errors, immaterialerrors or projected frauds. All this needs to be taken into consideration before expressing an opinion ofthe financial statements and laying the audit strategy[ CITATION Jon171 \l 1033 ].Stewart and Kathy are the auditors who will be auditing the client DIPL limited and they aretaking over from the old auditors Jay and Associates. There has been manychanges, which DIPL hasundergone in the recent past like change in the IT system, implementing it without testing and properplanning, changes in the policy of reporting, the depreciation method, etc. Besides this, there is hugeconcern as some of the transactions have been recorded in the period to which it does not pertain. Inthe likes of above discrepancies, the responsibility of the new auditor has multiplied and therefore itneeds to bring in front of the management the summary of the major observations noted. In theabsence of Industry data, the comparative analysis with industry was not possible and hence theanalysis has been restricted only to the ratio analysis for the last 3 years. Results201320142015Total current assets5,385,9387,509,1509,600,929Total current liabilities3,780,0005,120,2506,397,500Result1.421.471.50Negatve201320142015Total current assets - Inventory - Prepaid expenses3,129,7504,837,7885,420,429Total current liabilities3,780,0005,120,2506,397,500Result0.830.940.85Negative1. Short term solvency or liquidity RatiosCurrent Ratio = Total current assets/ Total current liabilitiesLiquid ratio /Quick Ratio = (Total current assets - Inventory - Prepaid expenses)/ Total current liabilitiesResults201320142015Total Debts3,780,0005,120,25013,897,500Total Assets5,120,25015,903,90026,147,991Result74%32%53%Positive201320142015Total Debts3,780,0005,120,25013,897,500Total owners' equity9,150,00010,783,65012,250,491Result41%47%113%Negative2. Debt Management RatiosDebt ratio = (Total Debts / Total Assets) or ((Total assets- total owners' equity)/total assets)Debt to Equity Ratio = (Total Debt/Total owners' equity) or ((Total assets- total owners' equity)/total owners' equity)3 | P a g e

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