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HI6026 Audit, Assurance and Compliance- Report

   

Added on  2020-03-04

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AUDIT AND ASSURANCE

Answer - 1:Analytical procedures forms an important part of thr audit processes that helps an auditor inplanning and forming an overall opinion on the evidences so as to analyze the consistencybetween his findings and his understanding of the entity. It involves determining the relationshipbetween both financial and non-financial data so as to form a complete study about all thepossible relationships existing within the firm. Analytical procedures are used by the auditor todetermine the nature, timing and extent of other audit procedures, used as a substantive test andused to form an overall review in the final stage of audit & accounting. As pee the given case of DIPL, the key ratios are being calculated for the previous three years soas to analyze the books on the basis of three years records. The results reveals the followingconclusions:1. CURRENT RATIOPARTICULARS201320142015CURRENT ASSETS 538593875091509600929CURRENT LIABILITIES378000051202506397500CURRENT RATIO ( CURRENTASSETS/CURRENTLIABILITIES)1.421.471.50The current ratio shows an increment while quick ratio shows first an increase from 0.83 to 0.94but then, 0.85 in the current year. The reason why both the ratios are not going in parallel witheach other is because of the difference in inventory. The inventory value is higher in the currentyear showing an increase in the current ratio while quick ratio excludes inventory as it cannot beconverted into cash readily, showing a decrement. Also, it is not a good sign as the % of fall incash in hand is falling drastically this year indicating unusual transactions or expenses of thecompany 2. EPS (EARNINGS PER SHARE)PARTICULARS201320142015NET EARNINGS 235919022913622972183NO. OF EQUITY SHARES(READ NOTE)225002250022500EPS (NET EARNINGS/NO.OFEQUITY SHARES)104.85101.84132.10Coming to EPS calculation and considering the financial statements, the profit before tax is Rs.3059299 and the tax on it is Rs. 87116 which is not possible without any manipulations as it

shows a tax amount of Rs. 1011081 in 2013 and Rs. 982012 in 2014. It may have happened toshow a higher net earning value so that the EPS could be higher as it is Rs 132.10 this year whileit was just Rs. 104.85 in 2013 and Rs. 101.84 in 2014. The company may be doing this to show astrong financial position and win the interest of the investors (Basu, 2009).3.RETURN ON EQUITYPARTICULARS201320142015NET INCOME235919022913622972183SHAREHOLDER'S EQUITY91500001078365012250491RETURN ON EQUITY (NETINCOME/TOTALEQUITY)*10025.78%21.25%24.26%While it shows a manipulation in income tax liability to show higher net earnings, it even showsan unusual increase in retained earnings, so as to show higher total equity capital because thecompany is under an obligation of maintaining its debt equity ratio less than 1 otherwise the loangiver would recall the loan (Blank, 2014). Also, in this way, it would be able to maintain its returnon equity % as the investors needs to know the % return they are receiving on their investment.4. INTEREST COVERAGE RATIOPARTICULARS201320142015NET EARNINGS 235919022913622972183INCOME TAX EXPENSE101108198201287116INTEREST EXPENSE8437983663808038EBIT ( EARNINGS BEFOREINTEREST AND TAX)345465033570373867337INTEREST COVERAGE RATIO (EBIT/INTEREST EXPENSE)40.9440.134.79The books shows an unusual decrease in the interest coverage ratio, that is, from 40.94 and 40.13to 4.79,which shows a drastic decrease in the interest paying capability of the company and ahuge burden of interest on it (Louwers, Blay, Sinason, Strawser & Thibodeau, n.d.).

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