HI6026 Auditing & Assurance Services | Assignment

Running head: AUDIT ASSURANCE AND COMPLIANCE
Audit Assurance and Compliance
Name of Student:
Name of University:
Author’s Note:

1AUDIT ASSURANCE AND COMPLIANCE
Answer to Question 1:
Analytical procedures deal with the evaluation of financial information and the use of this
procedures helps in increasing the efficiency of auditors. Procedures deal with the analysis and
evaluation of expected and plausible relationship between non-financial and financial data by
auditors. It might involve use of simple methods for analysis purpose along with using complex
models comprising of elements of data and existing of relationships. Using the analytical
procedures is helpful to auditors in planning state or preliminary stage. Investigation threshold of
auditors helps in increasing the efficiency of procedures in planning stage. This would help in
increasing the understanding of audit about the nature of business of clients and recognize any
audit risks that would arise by considering unexpected balance or unexpected relationship
between data presented. Auditors modify audit plan by depicting the extent of deviations from
expected values (Knechel et al., 2016).
Several tools that are used in analytical procedures include common size analysis, ratio
analysis and benchmarking. Common sizing helps in making the financial performance between
the entities over the time and it also makes comparison of financial performance over two
different time periods. Auditors such as assets can consider many items and liabilities for
examining deviations arise. The audit plan can be analysed by auditors by using the
benchmarking tool. Such tool will assist auditors in ascertaining the cause of deviations for
detecting variances and determining the root cause. In the current case study, the analytical
procedure use by auditors would be ratio analysis. This particular tool helps auditor in
identifying the performance tends of DIPL over the period of time and comparing it with other
indicators. In the particular case study, calculation of several ratios has been done such as current
ratio, solvency ratio and profitability ratio. Application of technique of ratio analysis has been

2AUDIT ASSURANCE AND COMPLIANCE
applied in the evaluation of financial information provided by DIPL over the period of three
years (Decaux & Sarens, 2015).
Particulars 2013 2014 2015
Profit margin 0.068 0.60 0.06
Solvency ratio 0.62 0.44 0.21
Current ratio 1.42 1.46 1.50
Ratio Explanation Audit impact
Current ratio The liquidity position of DIPL
is depicted by calculation of
Current ratio. DIPL has
witnessed an improvement in
their liquidity position as
demonstrated by increase in
current ratio over the time
period. Ratio stood at 1.42 in
financial year 2013 and it
increased to 1.46 and further
to 1.50 in financial year 2014
and 2015 respectively.
Increase in current ratio is
indicative of the fact that
Improvement in current ratio
0f DIPL is mainly associated
with is writing back of
allowance for loss resulting
from inventories. Auditors
would be efficient while
planning the audit because it
will assist them in evaluating
the financial position of
organization (Knechel, 2016).