HI6026 Audit, Assurance and Compliance

Added on -2020-02-19

| HI6026| 11 pages| 2704 words| 27 views

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AUDITING
AuditingAnswer to 1In relation to decision-making, analytical processes can prove to be of significant value to both the management and the auditor. Besides, not only financial decisions but also non-financial decisions can be taken with the help of analytical processes. In the given case of DIPL Ltd, such analytical processes have been performed in order to highlight the true performance of the company and thereafter, make decisions based on the same. Moreover, if there are any material misstatements forming part of the company’s financials, implementation of such processes can assist in identifying the same in order to safeguard any fraudulent affairs (Church et. al, 2008). Nevertheless, based on the background information of the company, such processes can be performed in order to achieve the intended results.The first analytical process conducted in relation to DIPL Ltd is an analysis of its trends. In this process, the financial information forming part of the company’s financials is compared with the last year figures so that variations can be identified, thereby resulting in effective decision-making. In simple words, the patterns or trends can be taken into account for making relevant decisions (Heeler, 2009). Besides, reasons behind major differences in the trends can be easily evaluated so that future complications can be prevented. Nevertheless, from the financials of DIPL Ltd, it can be identified that there was a massive enhancement in the sale figures of the company that is a good indicator in terms of performance. However, one important considerationmust be noticed in this scenario. If the sale figures are compared with the underlying stocks of the company, it can be seen that the difference is huge despite such enhanced sales. This becomes a matter of issue for the company, as the stocks must have declined owing to enhancement in the sale figures. Hence, the auditor must evaluate such trend to find the reason behind inflation of stocks even though the company achieved greater sales (Johnstone et. al, 2014).In the second process, evaluation of ratios has been conducted in order to ascertain the true financial position of the company. For such purpose, various ratios can be calculated and compared with that of the last years in order to find the true nature of the company’s operations. Based on the trend and profitability of DIPL Ltd, solvency, liquidity, and profitability ratios can prove to of immense importance. Liquidity ratios will assist in determining the liquidity position of the company whether it is able to repay its obligations, Solvency ratios will assist in
Auditingascertaining whether there is a proper balance in the capital structure of the company, profitability ratios focuses on the revenues attained by the company.Liquidity RatioCurrent Ratio201320142015Current assets538593875091509600929Current liabilities378000051202506397500C.A/C.L1.421.471.50Quick Ratio201320142015Quick assets312975048377885420429Current liabilities378000051202506397500Quick assets/currentliabilities0.830.940.85In order to ascertain the liquidity position of DIPL, quick and current ratios have been computed for the period of three years. Since the current ratio has been consistently above one, it signifies that the company is able to pay off its obligations without facing any issues. Similarly, when it comes to the quick ratio of the company, it can be witnessed that the ratio is equivalent to the normal ratio of 1:1, which signifies that the company’s liquidity position is strong in nature (Guerard, 2013).Solvency RatioEquity RatioParticulars201320142015Total Equity91500001078365012250491Total Assets129300001590390026147991Equity Ratio0.710.680.47Debt RatioParticulars201320142015Total liabilities3780000512025013897500Total Assets129300001590390026147991
AuditingDebt Ratio0.290.320.53It can be viewed from the ratios that the debt of the company has enhanced over the period of three years. Besides, the debt ratio has depicted 0.53 in the year 2015 that signifies the immense amount of debt in the capital structure of the company. In relation to this, it must be noted that increased debt in the capital structure can hamper the profitability of the company because there must be a proper balance betwixt debt and equity so that the performance is balanced as well (Berk et. al, 2015). On a whole, the above ratios clearly depict that the profits of the company may be highly affected and the auditor must evaluate these for implementing future courses of action (Berk et. al, 2015).Profitability RatioGross profit ratio201320142015Gross profit (I)600450060795006604500Sales (II)342120003769950043459500GP ratio = I/II17.55%16.13%15.19%Net profit ratio201320142015Net profit (I)235919022913622972183Sales (II)342120003769950043459500NP ratio = I/II6.90%6.08%6.84%In relation to the profitability ratios of DIPL Ltd, both net profit and gross profit ratio have been calculated in order to ascertain the profitability situation of the company. In relation to the net profit ratio, the figures have remained more or less consistent in all the three years but still, it hasdeclined from what was reported in the year 2013. This shows that the company is facing some issues in managing its expenses. In contrast to this, the gross profit ratio has significantly decreased over the years that signify issues in the management of cost of sales of the company (Guerard, 2013). Therefore, the auditor must evaluate this scenario so that better decisions can be

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