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Inherent Risks in DIPL Ltd: A Critical Analysis

   

Added on  2019-11-20

7 Pages1838 Words148 ViewsType: 148
Finance
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AUDITING
Inherent Risks in DIPL Ltd: A Critical Analysis_1

AuditingAnswer 1Being an auditor, and going through the presented records of the DIPL Ltd, it is advised to the company to follow certain measures that will help the company to thrive in the future and will be useful in making certain financial and non-financial decisions. All the advised functions if followed can depict a clear picture of the position of the company in the market, Auditor Liability: Liability Limitation, Wood 11It is seen that the advised procedures, if followed by the auditor, can help in making crucial decisions in relation to the finances of the company. There are many such procedures available and ready to be used, but it depends upon the auditor to them as per the demand of the present situations. It is also important to take into account the mode f measure before following any process of analysis (Wood, 2011). Taking into account the current circumstances, some of the analysis methods that can be followed are listed below:It would be appropriate if the financial position of the company is compared with the records of the previous years or with any estimates made for it to be achieved in the future. The current position can also be compared with any opposition company in the same field which will give the management an idea of the well-being of the company and its achievements in the past (Elder et. aprall energyal, 2016). While following this type of procedure it is seen that the information represented in the financial statements are compared with the ones estimated for the future achievements which will give them an idea of the scale which the company’s finances have been following and the explanation to those happenings. For instance, the alteration in the company’s turnover can be compared to the future estimates and also to the previous records for knowing the achievement (Geoffrey s, 2012). It is obvious that if the turnover shows a positive deflection then it is better for the company but it should also be kept in mind that seek a perfect explanation of such alteration because it can also happen that the return from debtors are or discount from the creditors is shown s false sales. This will help in depicting the true picture of the company (Geoffrey et. al, 2017)2
Inherent Risks in DIPL Ltd: A Critical Analysis_2

AuditingThe conformation of transactions in association with the debtors and creditors is necessary. It is also crucial to check the balances randomly to see if there exists some written off balances which are settled outside the managerial boundaries without the company having any knowledge about it. Similarly, all this can be shown as company’s capital which should be eliminated by the auditor by analyzing the confirmation statements. Evaluation of ratios is useful in depicting the bonding between stocks of items with the other. For instance, Gross Profit to Sales, Net Profit to Sales, and Inventory to Sales, Current Ratio, Quick Ratio,and Liquidity Ratio. All these ratio terms are useful in explaining the alteration in the sales. If the ratio for the previous three years is evaluated than a consistent trend is seen in them, like:Net Profit Ratio= Net Profit after Tax / Sales *100 2013= 23, 59,190/ 3, 42, 12,000 *100 = 6.902014= 22, 91,362/ 3, 76, 99,500 *100 = 6.082015= 29, 72,183/ 4, 34, 59,500 * 100 = 6.84Gross Profit Ratio = Gross Profit / Sales *1002013 = 17.55%2014 = 16.14%2015 = 15.199%The remaining unmentioned ratios like liquidity and solvency are also equally important. It should also be kept into attention whether the average rate of the ratios is maintained if not followed can lead to distress in the company. Ratios performing and maintaining a fixed defined rate shall be checked regularly by the auditor to detect any flaw put up by the managerial section for fooling the people. This leads to a show that the company is successful in attaining massive profit which is actually not the case. Thus, it is crucial that the auditor uses his knowledge and the skills to determine the financialposition of the company. 3
Inherent Risks in DIPL Ltd: A Critical Analysis_3

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