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HI6026 - Audit, Assurance Compliance

   

Added on  2020-03-04

9 Pages2492 Words68 Views
AUDIT

AuditAnswer to 1Several analytical processes are being conducted in DIPL Ltd and for such purpose; various kinds of ideas must be implemented. One of such processes is substantive process wherein businesses can easily analyze the market pattern so that future course of action can be anticipated. Auditors can also seek assistance from such process by identifying relevant evidenceso that the truthfulness and completeness of financial statements can be ascertained. In simple words, material misstatements from the financial statements can be easily recognized with the help of this procedure, thereby proving of great help in decision-making. Auditors in their capacity can easily bring professionalism and expertise in the form of such procedures so that a direct influence on business can be established (Church et. al, 2008). This is the reason why the auditors must know prior knowledge of analytical processes. In relation to DIPL Ltd, such processes can be easily implemented to ascertain the differences in books of accounts. Trend analysis is one of such analytical processes wherein auditors can determine the change in patterns over the business of the company in order to make relevant decisions. Further, ratio analysis can also be used in such situation so that assistance in relation to financial execution can be gained (Knapp, 2013). Hence, enabling the decision-making process within companies can be easily guided with the help of control, examination, and forecasting. Nevertheless, ratio analysis has been conducted in relation to DIPL Ltd so that effective decisions can be made regarding its financial statements. For the purpose of such evaluation, the computation of various ratios has been done for the period of three years (2013-2015). Besides, ratios like solvency ratio, liquidity ratio, and profitability ratio have been focusedupon in order to anticipate the patterns in company’s business. It can be witnessed from the financial information of DIPL Ltd that its current ratio has depicteda consistent trend that means the company is having ample assets to repay all its debt obligations in the future. In addition, the profitability ratio of DIPL has been presented through net profit andgross profit ratios that denotes how much profitable the company is. Even though the company isperforming on a profitable segment over the period of three years, yet some declining trends can be witnessed during such time. On one hand, while the net profit ratio of the company has increased, similarly, on the other hand, its gross profit ratio has witnessed a declining trend over these years. In order to obtain efficiency in such segments, the company must exert due focus on 2

Auditits costs so that the profitability area can be boosted taking into account the company’s revenues.Further, it can be seen that the company has borrowed interest-bearing liabilities in the year 2015and this is the reason why its debt-equity ratio reported at 0.61. Besides, the normal debt-equity ratio stands at 0.50, which shows that the company has to expend huge resources for payment of interests on such borrowings. Nevertheless, in the computation of debt-equity ratio, only long-term liabilities have been taken into account. The long term liabilities have been considered because the consideration is mainly on the long term loans. Such loans are used for a long term purpose while the short ones are paid off within a year (Northington, 2011). In addition to the above, there are some other concerns that must be taken into account. Firstly, the cash balances of the company have significantly decreased that is a very negative aspect on the part of the company. In addition, it can also be seen that the recovery process of the companyis very imperfect, as major resources are being blocked in its accounts receivables and therefore, this must be immediately looked after by the company (Northington, 2011). Besides, an enormous pile of inventories can also be seen in the financials of the company that generates doubts whether improper activities have been conducted within the company or not. On a whole, all these areas must be given due consideration by the company so that proper corrective actions can be implemented to have a better long-term survival. Therefore, the flaws in the methods to record the financial transaction will create obstacles for the auditor as there will be a requirementof an in-depth analysis by the auditor. The auditor generally makes a strong observation but relies on the data provided by the management (Lapsley, 2012). If the management makes grave mistakes it will create impact on the auditor’s decision. The faulty planning and data will influence the auditor to provide a decision that is different. 3

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