HI6026 - Audit, Assurance and Compliance - Case Study

AUDITING AND ASSURANCE

Answer 1.
Audit is an independent examination of the financial statement performed by the auditors in
order to give an unbiased opinion about it. The auditing procedure is broadly classified into
two categories- substantive procedures and analytical procedures. The analytical procedures
deal with the calculation of the significant accounting ratios that enables to analyse the
performance and position of the company and compare the current status with that of the past
periods (Basu, 2009). This helps the auditor to understand the financial statement in a more
better and precise manner. The auditor sets up an enquiry if he finds that there are certain
manipulations done in the financial statements. He extends the nature and timing of carrying
out his audit procedures.
According to the case study of DIPL Ltd. , following are the few financial ratios calculated to
evaluate the performance of the company for the year ended:
1. Current ratio
PARTICULARS 2013 2014 2015
CURRENT
ASSETS
538593
8
750915
0
960092
9
CURRENT
LIABILITIES
378000
0
512025
0
639750
0
CURRENT RATIO
( CURRENT
ASSETS/CURREN
T LIABILITIES)
1.42 1.47 1.50
1 2 3
1.38
1.40
1.42
1.44
1.46
1.48
1.50
1.52
CURRENT RATIO ( CURRENT
ASSETS/CURRENT LIABILITIES)
CURRENT
RATIO
( CURRENT
ASSETS/
CURRENT
LIABILITIES)
Current ratio can be calculated by dividing current assets by current liabilities. This ratio is
classified as liquidity ratio as it evaluates the capability of the company to meet it short term
liabilities with the help of short term assets of the company. As we can see in the above table,
the current ratio is growing over the years. This is a positive sign for liquidity as the company
has a strong financial health to meet its current liabilities.

2. Debt to Equity ratio.
PARTICULARS 2013 2014 2015
INTEREST-BEARING
DEBTS 0 0 7500000
SHAREHOLDER'S
EQUITY
915000
0
1078365
0
1225049
1
DEBT TO EQUITY
RATIO (TOTAL
DEBT/SHAREHOLDER
'S EQUITY)
0.00 0.00 0.61
1 2 3
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
DEBT TO EQUITY RATIO (TOTAL
DEBT/SHAREHOLDER'S EQUITY)
DEBT TO EQUITY
RATIO (TOTAL
DEBT/
SHAREHOLDER'S
EQUITY)
Debt appears on the liability side of the balance sheet and there is always a burden on the
company to pay off in the future. In this case study, we can find that there was no debt in the
initial two years but subsequently in the third year the company had to raise debt which
increased the debt equity ratio from 0 to 0.61. Although the ratio is not very high but when
compared to previous years it does not reflect a good financial health(Blank, 2014).