Auditing & Assurance Services Literature Review

This assignment requires a comprehensive review of literature pertaining to auditing and assurance services. Students are expected to analyze existing research, identify key themes and trends, and discuss potential areas for future investigation within the field. The review should encompass various aspects of auditing and assurance, including internal and external audits, audit market structure, auditor independence, and emerging issues such as sustainability reporting and corporate social responsibility (CSR) assurance.

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, Assurance and Compliance
Name of the Student:
Name of the University:
Author Note:

2AUDIT, ASSURANCE AND COMPLIANCE
Table of Contents
Question 1........................................................................................................................................2
Part A...........................................................................................................................................2
Application of analytical procedures to the financial report information of Double Ink Printers
Limited.........................................................................................................................................2
Profitability analysis................................................................................................................2
Liquidity Analysis...................................................................................................................4
Efficiency Analysis..................................................................................................................5
Solvency Analysis...................................................................................................................6
Part B...........................................................................................................................................7
Impact of analytical review on audit planning for the year ending 30th of June 2015.................7
Question 2........................................................................................................................................9
Identification of inherent risk factors that arise from the nature of business operations of Double
Ink Printers Limited.........................................................................................................................9
Question 3......................................................................................................................................10
Part A.........................................................................................................................................10
Key risk factors related to misstatement in financial reporting.................................................10
Part B.........................................................................................................................................11
Effect of risk factors on conduct of audit..................................................................................11
Reference List................................................................................................................................12

3AUDIT, ASSURANCE AND COMPLIANCE
Question 1
Part A
Application of analytical procedures to the financial report information of Double Ink
Printers Limited
In this particular question, ratio analysis had been calculated for the company named as
Double Ink Printers Limited where analytical review had been applied by generating information
from annual reports of company (William, Glover and Prawitt 2016).
Profitability analysis
Profitability Ratio
Double Ink Printers Limited
2013 2014 2015
Gross Profit 6004500 6079500 6604500
Net sales 34212000 37699500 43459500
Gross Profit 17.55085935 16.1262086 15.1969075
Double Ink Printers Limited
2013 2014 2015
Net Income 2359190 2291362 2972183
Net Sales 34212000 37699500 43459500
Net Profit 6.895796796 6.0779639 6.83897192
Double Ink Printers Limited

4AUDIT, ASSURANCE AND COMPLIANCE
2013 2014 2015
Net Income 2359190 2291362 2972183
Total Assets 12930000 15903900 26147991
Return on assets 18.24586234 14.4075478 11.3667738
Double Ink Printers Limited
2013 2014 2015
Net Income 2359190 2291362 2972183
Shareholder Equity 9150000 10783650 12250491
Return on Equity 25.78349727 21.2484827 24.2617459
Table: Profitability ratio of Double Ink Printers Limited
(Source: Created by Author)
From the annual report of Double Ink Printers Limited, profitability ratio is calculated for
the company for three consecutive years (2013, 2014 and 2015). Calculating profitability ratio
for a company help in predicting the profitability position of any business organization
 As far as gross profit ratio is concerned, it has declined over the three consecutive years.
In the year 2013, the gross profit of DIPL was 17.55%, 16.12% in the year 2014. There
was further decrease in gross profit at 15.19% for the year 2015 (Simnett, Carson and
Vanstraelen 2016).
 As far as net profit is concerned, it had declined from 2013 to 2015 and further increased
in the year 2015. In the year 2013, net profit of DIPL was 6.89% and 6.07% in the year
2014. There was further increase in net profit at 6.83% in the year 2015.

5AUDIT, ASSURANCE AND COMPLIANCE
 As far as return on assets is concerned, there was constant decrease from the year 2013 to
2015. In the year 2013, return on assets of DIPL was 18.24 and 14.40 for the year 2014.
There was further decrease in return on assets at 11.36% (Sierra‐García, Zorio‐Grima and
García‐Benau 2015).
 As far as return on equity is concerned, there was decrease in return on equity from 2013
to 2014 and then further increase for the year 2015. In the year 2013, return on equity for
DIPL arrives at 25.78% and 21.24% in the year 2014. There was further decrease in
return on equity at 24.26% in the year 2015.
Liquidity Analysis
Liquidity Ratio
Double Ink Printers Limited
2013 2014 2015
Current assets 5385938 7509150 9600929
Current Liabilities 3780000 5120250 6397500
Current Ratio 1.424851 1.46655
9
1.500731
Double Ink Printers Limited
Current assets 5385938 7509150 9600929
Inventory 2256188 2671362 4180500
(Current assets-inventory) 3129750 4837788 5420429
Current liabilities 3780000 5120250 6397500
Quick ratio 0.827976 0.94483
4
0.847273

6AUDIT, ASSURANCE AND COMPLIANCE
Table: Liquidity ratio of Double Ink Printers Limited
(Source: Created by Author)
From the annual report of Double Ink Printers Limited, liquidity ratio is calculated for the
company for three consecutive years (2013, 2014 and 2015). Calculating liquidity ratio for a
company help in predicting the liquidity position of any business organization
 As far as current ratio is concerned, there was constant increase in the current ratio over
the three consecutive years. In the year 2013, current ratio for DIPL arrives at 1.42 and
1.46 in the year 2014 (Rahim. and Idowu 2015). There was further increase in current
ratio at 1.50 in the year 2015.
 As far as quick ratio is concerned, there was increase in quick ratio from 2013 to 2014
and then further decrease for the year 2015. In the year 2013, quick ratio for DIPL arrives
at 0.82 and 0.94 in the year 2014. There was further decrease in quick ratio at 0.84 in the
year 2015.
Efficiency Analysis
Efficiency Ratio
Double Ink Printers Limited
2013 2014 2015
Cost of goods sold 28207500 31620000 36855000
Average inventory 2256188 2671362 4180500
Inventory Turnover ratio 12.50228261 11.8366586 8.815931109

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Double Ink Printers Limited
2013 2014 2015
Net credit sales 34212000 37699500 43459500
Average accounts receivable 2482500 4320000 5073309
Debtors Turnover Ratio 13.78126888 8.72673611 8.566302585
Table: Efficiency ratio of Double Ink Printers Limited
(Source: Created by Author)
From the annual report of Double Ink Printers Limited, efficiency ratio is calculated for the
company for three consecutive years (2013, 2014 and 2015). Calculating efficiency ratio for a
company help in predicting the efficiency position of any business organization
 As far as inventory turnover ratio is concerned, there was decrease in inventory turnover
ratio over the three consecutive years. In the year 2013, inventory turnover ratio for DIPL
arrives at 12.50 and 11.83 in the year 2014. There was further decrease in inventory
turnover ratio at 8.81 in the year 2015.
 As far as debtor’s turnover ratio is concerned, there was decrease in debtor’s turnover
ratio over the three consecutive years. In the year 2013, debtor’s turnover ratio for DIPL
arrives at 13.78 and 8.72 in the year 2014. There was further decrease in debtor’s
turnover ratio at 8.56 in the year 2015.
Solvency Analysis
Solvency Ratio

8AUDIT, ASSURANCE AND COMPLIANCE
Double Ink Printers Limited
2013 2014 2015
Total
Liabilities
3780000 5120250 13897500
Total Equity 9150000 10783650 12250491
Debt to
Equity Ratio
0.413115 0.474816 1.134444326
Table: Solvency ratio of Double Ink Printers Limited
(Source: Created by Author)
From the annual report of Double Ink Printers Limited, solvency ratio is calculated for the
company for three consecutive years (2013, 2014 and 2015). Calculating solvency ratio for a
company help in predicting the solvency position of any business organization
 As far as debt to equity ratio is concerned, there was constant increase in the debt to
equity ratio over the three consecutive years. In the year 2013, debt to equity ratio for
DIPL arrives at 0.41 and 0.47 in the year 2014. There was further increase in debt to
equity ratio at 1.13 in the year 2015.
Part B
Impact of analytical review on audit planning for the year ending 30th of June 2015
In this particular question, different risk had been identified from the analytical review and
evaluating the financial reports of DIPL that links with the impact on the audit planning.

9AUDIT, ASSURANCE AND COMPLIANCE
 On analysis, it is noted that the profitability of DIPL had not improved in the year 2015.
There had been decline in the profits of DIPL that lead to issue of going concern ability
for business organization. Therefore, detailed analysis need to make for DIPL where the
company should plan for exploring the future prospects (Louwers et al. 2015).
 On analysis, it is noted that the current ratio of DIPL has improved in the year 2015. By
this, it is understood that there is proper writing back of allowance for any loss present
for stock or inventory. Hence, in-depth analysis needs to perform on inventory allowance
for checking over the validity of actions (Lenz and Hahn 2015).
 On analysis, it is noted there is increased financial risk present at DIPL. In this case, the
disclosures are related to risk that need to be analyzed after checking the fact whether
information for the same had been properly declared in the reports.
 On analysis, it is noted that there is decline in the efficiency of management at debt to
equity ratio where the company failed to manage the current assets and should make an
effort for identifying the possible reason to do so (Knechel and Salterio 2016).

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Question 2
Identification of inherent risk factors that arise from the nature of business operations of
Double Ink Printers Limited
Double Ink Printers Limited
Risk Material misstatement in the financial statement
Financial risk
It is one of the risks that arise from the inability of
any business when they cannot pay off their long-
term liabilities on time (Al-Akra, Abdel-Qader
and Billah 2016).
On analysis, it is noted that DIPL makes an attempt
to manipulate in their financial records so that the
company can maintain current ratio and debt to
equity ratio as agreed by the lending company
(Junior, Best and Cotter 2014). DIPL need to
inflate their current assets through increased values
of receivables or stock to maintain the current
assets. On the other hand, DIPL inflate the value of
equity through increased value of retained earnings
to maintain debt to equity ratio.
Information technological risk
It is one of the risks that arise when a company
adopts information technology. To that, any
deficiency in the information technology control
had adverse impact on the business organization
(Arens et al. 2016).
On analysis, it is noted that DIPL failed to maintain
balance between new accounting system and
existing software system. Due to that, there was
problem relating to improper allocation of
transactions for specific period of time. In addition,
the accounting concept of periodicity was not
followed and that adversely results to inaccurate
presentation of profitability and financial position

11AUDIT, ASSURANCE AND COMPLIANCE
of DIPL (Eilifsen et al. 2013).
Question 3
Part A
Key risk factors related to misstatement in financial reporting
Risk Factors Material misstatement in the financial reporting
Debt covenants On analysis, it is noted that debt covenants is one
of the risk factor that DIPL faced for given period
of time (Carey 2015). To that, there was huge
pressure on the Finance Department of DIPL as
they find it difficult to meet the different debt
covenants. Furthermore, a loan of 7.5 million was
taken from BDO Finance Limited by DIPL in the
year 2015 based on two components. In that case, if
DIPL fails to meet these two conditions, then the
loan will be taken back that negatively affect the
operations of the company. Therefore, there is a
possibility that current assets might have inflated so
that the ideal current ratio can be maintained
(Crockett and Ali 2015). It is noted that there are
some manipulation present in the retained earnings
as the debt ratio should be less than 1.

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Nature of control environment On analysis, it is noted that nature of control
environment is one of the risk factor that was faced
by DIPL for specified time period. Nature of
control environment lead to existence of fraudulent
practices in financial reporting that exists due to
poor defined job description of poor segregation of
work. In addition, there is a possibility that stock
can be manipulated through portraying less stock at
the time of arrival of cash. Hence, there is improper
system used at the time of documentation that helps
in preventing fraudulent activities (Cohen and
Simnett 2014).
Part B
Effect of risk factors on conduct of audit
 Effect of debt covenants on audit plan- DIPL need to balance their current assets and
current liabilities after checking whether there is any inflation present in current assets or
deflation in current liabilities (Christopher 2015). Therefore, the balance of equity need to
be analyzed through careful verification of retained earnings.
 Effect of control environment on audit plan- DIPL need to check the balance of stock or
inventory. The quantity of orders placed for the purchase of stock need to match with the
quantity received and there should be no manipulation present and conducted by any
accounts payable clerks (Carson, Redmayne and Liao 2014).

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Reference List
Al-Akra, M., Abdel-Qader, W. and Billah, M., 2016. Internal auditing in the Middle East and
North Africa: A literature review. Journal of International Accounting, Auditing and
Taxation, 26, pp.13-27.
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance services.
Pearson.
Carey, P.J., 2015. External accountants’ business advice and SME performance. Pacific
Accounting Review, 27(2), pp.166-188.
Carson, E., Redmayne, N.B. and Liao, L., 2014. Audit market structure and competition in
Australia. Australian Accounting Review, 24(4), pp.298-312.
Christopher, J., 2015. Internal audit: Does it enhance governance in the Australian public
university sector?. Educational Management Administration & Leadership, 43(6), pp.954-971.
Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A
Journal of Practice & Theory, 34(1), pp.59-74.
Crockett, M. and Ali, M.J., 2015. Auditor independence and accounting conservatism: Evidence
from Australia following the corporate law economic reform program. International Journal of
Accounting & Information Management, 23(1), pp.80-104.
Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance
services. McGraw-Hill.

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Junior, R.M., Best, P.J. and Cotter, J., 2014. Sustainability reporting and assurance: A historical
analysis on a world-wide phenomenon. Journal of Business Ethics, 120(1), pp.1-11.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.
Lenz, R. and Hahn, U., 2015. A synthesis of empirical internal audit effectiveness literature
pointing to new research opportunities. Managerial Auditing Journal, 30(1), pp.5-33.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.
Rahim, M.M. and Idowu, S.O. eds., 2015. Social Audit Regulation: Development, Challenges
and Opportunities. Springer.
Sierra‐García, L., Zorio‐Grima, A. and García‐Benau, M.A., 2015. Stakeholder engagement,
corporate social responsibility and integrated reporting: an exploratory study. Corporate Social
Responsibility and Environmental Management, 22(5), pp.286-304.
Simnett, R., Carson, E. and Vanstraelen, A., 2016. International Archival Auditing and
Assurance Research: Trends, Methodological Issues, and Opportunities. Auditing: A Journal of
Practice & Theory, 35(3), pp.1-32.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.