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HI6026 - Audit, Assurance and Compliance, Preliminary Analytical

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Holmes Institute Sydney

   

Audit, Assurance and Compliance (HI6026)

   

Added on  2020-03-13

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In the HI6026 Assignment, we will discuss Audit, Assurance, And Compliance. Preliminary analytical procedures help an auditor in the development of a strategy for auditing. Inherent risk is those risk that lies beyond the control of an auditor’s audit procedures and methods of control. As per the background information of DIPL, its two fraud risk factors are loans taken from BDO Finance Ltd. and another is the adoption of a new IT system in their course of operations.

HI6026 - Audit, Assurance and Compliance, Preliminary Analytical

   

Holmes Institute Sydney

   

Audit, Assurance and Compliance (HI6026)

   Added on 2020-03-13

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Running Head: AUDIT, ASSURANCE AND COMPLIANCEAudit, Assurance and ComplianceSubject Code- HI6026Trimester No.- 2Student’s name- Word Count - 1500 Professor – University - Ans. 1:
HI6026 - Audit, Assurance and Compliance, Preliminary Analytical_1
AUDIT, ASSURANCE AND COMPLIANCEP a g e | 2Preliminary analytical procedures help an auditor in the development of a strategy for the purpose of auditing. These are framed with respect to the extent, nature and time techniques so as to gain the overall knowledge of the client’s business. This procedure is basically a two step format where the first step involves understanding the client’s business. The other step is of analyzing certain sections of financial statements which are suspicious of having any form of error. For the business of DIPL, the following items shall be evaluated[ CITATION PCA17 \l 16393 ]. Return on Equity:YearNet Income (a)Shareholder equity(b)Return on Equity[a/b * 100 (in %)]20132359190915000025.782014 2291362 10783650 21.252015 2972183 12250491 24.26This particular ratio helps in evaluating DIPL’s growth in earnings with respect to its level of investments. From the above table, it can be ascertained that with time, the level of return on equityhas eroded in 2014 and uplifted in 2015. The volatility in the return of equity proves the fact that DIPL is trying to expand its business with the help of borrowings and investments. As anauditor, it is my duty to keep a check on DIPL’s investments along with the borrowings and its overall effect on the return on equity [ CITATION And98 \l 16393 ]. Interest related liabilities: From the financial statement of DIPL, it has been found that a loan of $7.5 million hasbeen taken from BDO Finance Ltd. It is important for the organization to strictly follow the conditions of BDO Ltd. In relation to the debt-equity ratio and current ratio. As far as applying analytical procedures are concerned, it is very important that as an auditor, I should
HI6026 - Audit, Assurance and Compliance, Preliminary Analytical_2
AUDIT, ASSURANCE AND COMPLIANCEP a g e | 3review the nature of the loan. It should be analyzed whether the loan is being used for the applied purpose or not. The chances of fraud are relatively high in this component because of the amount involved. So, the fraud risk factors would be strictly kept under observation by adopting the measures of surprise check [ CITATION Acc09 \l 16393 ]. Gross Profit Margin:YearGross Profit (a)Revenue(b)GP Margin[a/b * 100 (in %)]201360045003421200017.55201460795003769950016.13201566045004345950015.20From the above table, it can be reflected that gross profit margin has fallen from 2013 to 2015 by 2.35 basis points (17.55-15.20). Generally, a rise in the gross profit margin is considered as a favorable position for any organization. Here, DIPL’s gross profit margin ratio is falling in spite of the fact that its current assets outweigh the current liabilities. This requires keen attention of the management and it is the duty of an auditor to inform them about the current position. For this, the level of cost of debt along with the organization's expenses shall be analyzed to learn the reason behind fall in the margin. Accordingly, the management of DIPL can adopt a necessary course of action to safeguard from the downfall of the margin [ CITATION Hir96 \l 16393 ]. Time Interest Earned Ratio:YearNetincomebeforeinterestandtax (a)Interestexpense(b)Time Interest EarnedRatio [ a/b]201334546508437940.94201433570378366340.13201538673378080384.786
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