HI6026 - Audit, Assurance and Compliance, Preliminary Analytical

Added on - Mar 2020

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.

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Running Head: AUDIT, ASSURANCE AND COMPLIANCEAudit, Assurance and ComplianceSubject Code- HI6026Trimester No.- 2Student’s name-Word Count - 1500Professor –University -Ans. 1:
AUDIT, ASSURANCE AND COMPLIANCEP a g e|2Preliminary analytical procedures help an auditor in the development of a strategy forthe purpose of auditing. These are framed with respect to the extent, nature and timetechniques so as to gain the overall knowledge of the client’s business. This procedure isbasically 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 ofhaving 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 %)]20132359190915000025.78201422913621078365021.25201529721831225049124.26This particular ratio helps in evaluating DIPL’s growth in earnings with respect to itslevel 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 factthat 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 andits 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 theconditions of BDO Ltd. In relation to the debt-equity ratio and current ratio. As far asapplying analytical procedures are concerned, it is very important that as an auditor, I should
AUDIT, ASSURANCE AND COMPLIANCEP a g e|3review the nature of the loan. It should be analyzed whether the loan is being used for theapplied purpose or not. The chances of fraud are relatively high in this component because ofthe amount involved. So, the fraud risk factors would be strictly kept under observation byadopting 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 2013to 2015 by 2.35 basis points (17.55-15.20). Generally, a rise in the gross profit margin isconsidered as a favorable position for any organization. Here, DIPL’s gross profit marginratio is falling in spite of the fact that its current assets outweigh the current liabilities. Thisrequires keen attention of the management and it is the duty of an auditor to inform themabout the current position. For this, the level of cost of debt along with the organization'sexpenses shall be analyzed to learn the reason behind fall in the margin. Accordingly, themanagement of DIPL can adopt a necessary course of action to safeguard from the downfallof the margin[ CITATION Hir96 \l 16393 ].Time Interest Earned Ratio:YearNetincomebeforeinterestandtax (a)Interestexpense(b)Time Interest EarnedRatio [ a/b]201334546508437940.94201433570378366340.13201538673378080384.786

In the end, we discussed Audit, Assurance, and Compliance in this assignment we covered three questions. In first question we explained Preliminary Analytical Procedures, Inherent risk, and Background Information of DIPL.

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