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Audit And Asssurance Answer 1

   

Added on  2020-03-01

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Finance
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AUDIT AND ASSURANCE
Audit And Asssurance Answer 1_1

Answer 1.Analytical procedure is a part of auditing process which involves calculation of key financialratios which enables to compare and analyse the performance of the company. It helps theauditor to form an overall opinion on the financial statement that whether they are showingtrue and fair view or not. It helps in comparing the past performance of the company with thepresent performance. The financial statements should be consistent so that it can create abetter understanding of the firm. As audit is an independent examination of the financialstatements, the auditor is able to give an opinion that there is a presence of material errors inthe financial statements or not. The auditor must find out the reasons if there is any majorchanges or inconsistency found while examining the financial statements (Basu, 2009)..The auditor finds out some important financial ratios in order to compare the financial data ofthe company over the years. As per the case study that has been provided to us, the keyfinancial ratios of DIPL are shown below along with the analysis (Blank, 2014).:1.Gross profit ratio.20132014201514.00%14.50%15.00%15.50%16.00%16.50%17.00%17.50%18.00%17.55%16.13%15.20%GROSS PROFIT MARGINGROSS PROFIT MARGINIt is always a positive sign if the gross profit increases over the years as it is a result ofefficient working of the company. We can see that the gross profit percentage has beendecreasing over the years i.e. 1% every year for the past three years. This shows that theprofit earned by the company is decreasing which may be the result of inefficient working.There may be many other factors which would have affected the gross profit percentage. 2.Current Ratio and Quick Ratio.
Audit And Asssurance Answer 1_2

2013201420151.381.41.421.441.461.481.51.521.421.471.5CURRENT RATIOCURRENT RATIO2013201420150.760.780.80.820.840.860.880.90.920.940.960.830.940.85QUICK RATIOQUICK RATIOThe current ratio of the company shows the ability of the company to pay off its short termliabilities with the help of its current assets. The current ratio is considered to be a type ofliquidity ratio. Current ratio is considered good when it is equal or greater than 1. It has beenshown in the above table that the current ratio has been increasing over the years which isconsidered favourable. However, Quick ratio shows more appropriate liquidity position thanthe current ratio as it includes the amount of inventories which may not be converted intocash immediately. Therefore, we can say that the quick ratio of the company helps us indetermining the cash readily available with the company to meet its short term expenses(Boynton & Johnson, 2006). The quick ratio of the company is presently 0.84 whereas in theprevious year it was 0.94 which shows that there is a decline in the good liquidity position ofthe company. The company may face certain obstacles in paying off its short termobligations.
Audit And Asssurance Answer 1_3

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