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AUDITING & ASSURANCE
AuditingAnswer – 1The various methods followed by an auditor for the well being of the account balances and many other major transactions in the company at a substantive level is collectively known as Substantive procedures. These methods if strictly followed by the auditor provide the organizations with an opportunity to plan the future strategies. The evidence collected during the period can also be helpful in eliminating any material misstatements that may have existed in the financial statements.If a financial statement is legal and totally valid then it is easy for the auditors to present a clear view of the state of affairs of the company. Thus for achieving the above-explained goals, the auditor must put pressure for following the substantive methods. But it is necessary to analyze all the current situations before following any methods (Heeler, 2009). In the case of DIPL Ltd also, the auditor must analyze all the current situations before following any substantive measures. This procedure has proved to be a boon to for the auditors by which they can easily detect any flaw in the financial statements. But it is important to take into account valid evidence before applying substantive procedures (Gay &Simnet, 2015). Financial Statements records of the company clearly show that the company has strong foundations. On the basis of the records, analysis can be made with the help of ratio analysis, the pattern of trend and scanning of the financial records. The trend factor in the financial statements is very crucial, as it depicts the performance of the company over a limited mentioned period of time. The previous records are always helpful in deciding the future performance (Elder et. al, 2010). Another procedure for the evaluation of the ratios can be useful in determining the yearly performance and can be a decision makinga factor. The third factor that is the evaluation of the financial records can be taken into account for depicting the relationship between different variables (Reding et. al, 2015). So the three factors can be given the title of the decision making factors and are important for carrying out an audit. In order to start a well mannered and to determine the financial performance, the following computation of three years for DIPL Ltd is presented below. The profitability ratio depicts the way in which the business functions, the liquidity ratio represents the potential of the company to credit the obligations and lastly the solvency ratio determines the position of the company (Heeler, 2009). Gross profit aligned with net profit ratio depicts the profitability ratio. The performance of a company in its respective fields is denoted by the gross profit ratio; which in this case saw a trivial downfall in a span of 3 years. The net profit ration also denotes the performance; which in this case had been stable for the 2
Auditingyear term depicting that the company had performed equally in all the three years and has worked hard to maintain the desired results (Guerard, 2013). Gross profit ratioGross profit 600450060795006604500Revenue342120003769950043459500GP ratio= gross profit/ net sales*10017.5508616.1262115.19691Net profit ratioNet profit235919022913622972183Revenue342120003769950043459500NP ratio =net profit/ net sales *1006.8957976.0779646.838972Liquidity RatioIt is the topic that current ration aligned with the quick ratio is evaluated together. A healthy current ratiodepicts that the company has a hard liquidity base; in this case, the ratio is 1:1 which is very positive for the company as it increased in all the three years. Also, the quick ratio is a first-class indicator of liquidity. This ratio does not consider the stock and hence is a better indicator as compared to the current ratio (Guerard, 2013). Records show that the quick ratio also has seen a positive deflection. This also shows that the liquidity is in a good state. 201320142015Current RatioCurrent assets538593875091509600929Current liabilities378000051202506397500Current Ratio = CA/CL1.4248511.4665591.500731Quick RatioQuick assets312975048377885420429Current liabilities37800005120250 6397500Quick ratio0.8279760.9448340.8472733
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