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ITECH1103 - Analytical Procedures By Auditor

   

Added on  2020-03-02

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AUDITING AND ASSURANCE

ANSWER 1:Analytical procedures are the procedures performed by the auditor at the end of the year in order to helpthe auditor create overall opinion regarding financial statements in his report.It is done to ensure that thefinancial statements are in the perspective of the firm’s auditor.It helps to distinguish between financialand non-financial information, and also to differentiate between this year's and the previous year’sfinancial information (Basu, 2009). If any inconsistency or any physical changes are seen, then theauditors may interrogate with the administration or those charged for it or proceed with theadministration of auditing charges in the audit process so that the detailed study of their observations isinconsistent. According to the DIPL case study, the main fundamental ratios are calculated for theanalytical procedure so that the planning can be prepared based on this approach: -1.CURRENTRATIO2013201420151.381.41.421.441.461.481.51.521.421.471.5CURRENT RATIOCURRENT RATIO2013201420150.760.780.80.820.840.860.880.90.920.940.960.830.940.85QUICK RATIOQUICK RATIO

The current ratio of the current year is 1.50, comparing to the previous years, which is 1.42 for2013 and 1.47 for 2014, which indicates favorable conditions because the current ratio indicatesthe liquidity of the company. However, the true sign of the liquidity of company is a quick ratio,because the amount does not contain inventories which are done in order ensure that cashavailable in the form of goods cannot be immediately converted into cash. However, the currentyear's quick ratio is 0.85, which is less than that of the previous year 2014, which is 0.94, thatmeans the real cash is not available very much in hand if in this case, the company have to clearits short-term transactions (Blank, 2014). This is not a good sign because the percentage of cashin hand has decreased significantly in comparison to last year, which is an estimate of unusualproceedings or company expenses than last year.2.RETURN ON EQUITY2013201420150.00%5.00%10.00%15.00%20.00%25.00%30.00%25.78%21.25%24.26%RETURN ON EQUITYRETURN ON EQUITYAccording to Equity percentage and Return on EPS calculation, profit before tax is Rs. 3059299in 2015 but income tax is showing the amount of money as Rs. 87116 which is not possiblewithout any unnecessary change. It can also be done to show high net earnings as the EPS for thecurrent year is of about Rs. 132 but for the previous years, the EPS was as low as Rs. 104.85 for2013 and Rs. 101.84 for the year 2014. It is necessary to evaluate this type calculation of PAT(Profit After Tax) because the income tax calculation is very low, which can be used to displayhigh EPS so that the company can fulfill their sole objective of earning a profit by winning theinvestor's trust.Also, these calculations of net earnings can be made high so that their return onequity percentage increases as compared to the previous years because it states the amount ofreturn the investors receive on their investment.

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