Auditing and Assurance Services- Project Report
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Added on 2019-11-26
Auditing and Assurance Services- Project Report
Added on 2019-11-26
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AUDIT & ASSURANCE
AuditingAnswer-1Substantive processes play a vital role in the auditing process because it assists an auditor to identify material misstatements prevalent in the financials of a company so that relevant judgement can be provided. Besides, such processes can also assist in compliance with qualitative attributes like completeness and efficacy of the financial statements. Nevertheless, in relation to DIPL Ltd, before conducting such procedures to arrive at a judgement, several concerns must be taken into account (Gay & Simnet, 2015). However, it must be noted that an auditor must go through various authenticated documents in order to qualify as an effective substantive process that can, in turn, assist in identification of material misstatements.There are many analytical procedures that can be conducted in order to analyze the background information of DIPL Ltd. The first analytical process that can be utilized in this case is trend analysis wherein the future results of the company can be easily anticipated with the help of past results. The second process is associated with the evaluation of the financial information of the company based on the financial and non-financial information. This can assist in the implementation of relevant and effective decisions upon the financials of DIPL Ltd. The last analytical process in this regard is the implementation of ratio analysis so that a perfect comparison can be made with that of the last financial outcomes of the company, thereby assisting in effective financial decisions (Matthew, 2015). Thus, these three analytical processes can be taken into account in relation to the company’s background information.Ratio analysis has been conducted in this scenario in order to assess whether the financial outcomes depicted in the financials of DIPL are efficient or not. RatioFormula201320142015Current RatioCurrent Assets/ Current Liabilities1.421.471.50Gross Profit RatioGross Profit/ Sales17.5516.1315.20Net Profit RatioNet Profit after tax/ Sales6.896.076.84Debt Equity Debt / Equity__0.612
AuditingRatioIn the liquidity segment of the company, current ratio has been calculated that can assist in ascertaining its liquidity position. From the figures, it can be observed that the current ratio of DIPL had consistently remained in an average phase. This can be proved by the fact that the ratioremained below two over the years that concludes effective liquidity status on the company’s part (Heeler, 2009). The second part is the debt equity ratio that assists in ascertaining whether the company has an adequate balance of debt and equity in its capital structure (Davies & Crawford, 2012). It can be seen that the debt equity ratio of DIPL is nil in both 2013 and 2014 that signifies zero liabilities in these years. However, the reason behind an increment of 0.61 in the year 2015 can be attributed to the fact that the company had procured liabilities in such year. Furthermore, in relation to profitability ratio, it can be seen that on one hand, the net profit ratio of DIPL have depicted an effective result as it has decreased but on a slight note. However, it further increased in the year 2015. Similarly, the gross profit ratio has depicted a declining trend over the years that are a negative indicator on the part of company’s performance. It shows that the profitability status of the company is at stake and the management as soon as possible must address it.After assessing the above calculations, it can be said that it is the moral responsibility of an auditor to take into account other concerns before undertaking such analytical procedures to provide a judgement. This is because it can be witnessed from the financials of the company that its debts have shown an enormous increment over the years that is a negative indicator of its performance. Further, the balances of cash have also depicted a declining trend that signifies lackof adequate resources to finance major working capital requirements. In addition to this, owing to lack of resources, the payables of the company have also portrayed an increasing trend that shows the inability of the company in addressing its usual transactions (Guerard, 2013). Lastly, itcan also be seen that the accounts receivables of the company have depicted an increasing trend that signifies inappropriate functioning of the recovery policy of the company. Therefore, the auditor must also evaluate all these concerns before implementing analytical processes, as it mayassist him in making decisions that are more valuable. Besides, these concerns are clearly presentin the financials of DIPL that gives rise to the fact that if these are not addressed properly, future 3
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