1AUDITING THEORY AND PRACTICEAnswer to Question 1:Auditors are able to plan their audit by conducting preliminary analysis usinganalytical procedures. Such plan helps in cutting unreasonable cost associated with audit andclarifies any facts for accomplishing the verification of financial declaration of DIPL. Thereare many analytical procedures available to auditor for carrying out analysis and this involvescommon size analysis, benchmarking and ratio analysis. Application of ratio analysis toolwould help auditor in providing information about trend of financial performance oforganization (Boone et al. 2017). Application of analytical procedures to the financial declaration of DIPL:For the analysis of financial performance, auditor uses ratio analysis tool. Analysis isdone by calculation profitability, liquidity, solvency and efficiency position of company. Profitability analysis:Table 4: Profitability RatiosRatio201320142015Gross Profit Ratio 17.55%16.13%15.20%Net Profit Ratio 6.90%6.08%6.84%Operating Profit Ratio 19.82%19.18%19.12%Return on Assets 18.25%14.41%11.37%Return on Equity 25.78%21.25%24.26%The above table depicts profitability position of DIPL over the period of three years.It involves calculation of gross profit, net profit ratio, return on assets, return on equity andoperating profit margin. Gross profit ratio has decreased since year 2013. Ratio stood at17.55% in financial year 2013 as compared to 16.13% and 15.2% in year 2014 and 2015respectively. Net profit ratio stood at 6.9% and 6.08% in year 2013 and 2014 as against

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