Assignment | Audit, Assurance and Compliance (HI6026)


Added on  2020-03-04

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ANSWER 1:The audit procedure involves various activities, one of which is analytical procedure. Analytical procedure means computation of key financial ratios by the auditor at the year end in order to analyze and create an opinion regarding the financial statements. It is done to determine the fact that the financial statements are in accordance with the understanding of the firm's auditor. It helps to differentiate the financial information of the current year with the previous years by determining potential relations between both financial and non-financial data. There may be any inconsistency or physical change identified in the management which may be questioned by the auditor or a reason or an enquiry may be set up. This reasoning and logic may be helpful to carry out the auditing procedure.1.CURRENT RATIO PARTICULARS201320142015CURRENT ASSETS 538593875091509600929CURRENT LIABILITIES378000051202506397500CURRENT RATIO ( CURRENTASSETS/CURRENTLIABILITIES)1.421.471.50PARTICULARS201320142015CASH & CASH EQUIVALENTS647250517788347120ACCOUNTS RECEIVABLES(NET)248250043200005073309TOTAL QUICK ASSETS312975048377885420429CURRENT LIABILITIES378000051202506397500QUICK RATIO (TOTAL QUICKASSETS/CURRENTLIABILITIES)0.830.940.85It has been observed from the calculation that in the year 2015 the current ratio is 1.50 whereas in the previous years it was 1.47 and 1.42. The current ratio is considered to be good when it is high as it shows the ability to repay the current liabilities with the help of current assets. Both current ratio and quick ratio falls under the category of liquidity ratio. Quick ratio is however the true signal of liquidity ratio as it excludes inventories which cannot be converted into cash so

easily. The quick ratio of the company is just like current ratio, the higher the better. It has been observed that in 2015 it was 0.85 but in the previous year it was more favorable as it was a little more higher.2.RETURN ON EQUITYPARTICULARS201320142015NET INCOME235919022913622972183SHAREHOLDER'S EQUITY91500001078365012250491RETURN ON EQUITY (NETINCOME/TOTALEQUITY)*10025.78%21.25%24.26%EPS (EARNINGS PER SHARE)PARTICULARS201320142015NET EARNINGS 235919022913622972183NO. OF EQUITY SHARES(READ NOTE)225002250022500EPS (NET EARNINGS/NO.OFEQUITY SHARES)104.85101.84132.10From the calculations and table shown above we can draw a coclusion that therehas been some manipulations going on. We can draw such conclusions as the earning before tax of the company in the year 2015 is 3059299 but the income tax is only 87116 which is difficult to understand. This act may have been done to show a higher EPS so that the company can maintain its status in the market. This can misguide the investors which would lead them to take wrong decisions.3.DEBT TO EQUITY RATIOPARTICULARS201320142015INTEREST-BEARING DEBTS007500000SHAREHOLDER'S EQUITY91500001078365012250491DEBT TO EQUITY RATIO(TOTALDEBT/SHAREHOLDER'SEQUITY)

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