logo

HI6026 Compliance and Audit - DIPL Case Study

   

Added on  2020-03-07

11 Pages2816 Words20 Views
AUDIT & COMPLIANCE

AuditingAnswer to 1Substantive procedures are those activities that are performed by an auditor during the substantive stage of an audit wherein evidence is collected in order to fulfill the completeness and efficacy of account balances and other transactions (Ghandar & Tsahuridu, 2016). In simple words, with the assistance of such procedure, organizations gain an ability to analyze and anticipate the future strategies. Furthermore, organizations can easily utilize such collected evidence in order to terminate material misstatements from their financial statements. Nevertheless, it is very significant for an auditor to make use of such processes in order to bring effectiveness upon the organization. In relation to this, the auditor must utilize his professionalism and experience to anticipate future course of action (Elder et. al, 2010). All theseconcerns make the relevance of substantive procedures more effective to the auditor.In the case of DIPL ltd, the following analytical process can be taken into account. In the first stage, trend analysis can be implemented to observe variations in the figures of corresponding items incorporated in the financial statements over a period. However, in order to conduct trend analysis in order to anticipate future aspects, experience, and enhanced judgement is very necessary. Such analytical process can be easily implemented in a company and the identified trends can be utilized in order to obtain assistance in the decision-making process (Gilbert et. al, 2005). The next analytical process relates to ratio analysis wherein the financial performance of acompany can be highlighted and a comparison can be made between the ratios of different companies or years. Nevertheless, effective testing, control measures, and analysis can also serveas a significant analytical process in the decision-making process.The best way to comment on the financial performance is to perform ratio analysis that will shed light on the performance as per various parameters. It enables to compare the performance of various years.Ratio201320142015Current Ratio1.4241.4661.500Net Profit Ratio6.8956.0776.838Debt-Equity RatioNilNil0.612Gross Profit Ratio17.55016.12615.1962

AuditingTotal Asset Turnover264.594261.4943206.6946The aforesaid ratio analysis depicts that DIPL has been effective in its operations. This can be proved by the fact that the current ratio of DIPL is consistently below two that shows nil problems in relation to liquidity. In simple words, this means that the company can easily pay offits debt obligations within a specified time (Brealey et. al, 2014). Further, the net profit ratio shows a consistent track record in each of the three years, which means that the company is capable in transforming its revenue into gains. Similarly, the debt-equity ratio of 0.612 in the year 2015 can be attributed to the fact that the company had borrowed interest-bearing liabilities in that year. However, for the debt-equity ratio to be effective, it must be an admixture of both debt and equity, but in this case, only debt forms part of the ratio. In contrast to this, the gross profit ratio of the company has witnessed a decline over the three-year period. This decline depicts that the company is facing issues associated with its profitability and therefore, it must carve out ways to get rid of such issues (Brigs, 2013). Further, the total asset turnover indicates that the company has utilized the assets in an effective manner and that is evident from a strong asset turnover ratio.In association with the above-mentioned evaluation of the ratios of DIPL Ltd, there are few significant concerns that must be highlighted. First, the decline in cash balances of the company over the years clearly gives rise to the fact that the company is not in a very good position in terms of liquidity. Second is the enhancement of bad debts over the three-year period that is a very bad indicator in terms of both profitability and liquidity. Further, the figures of stock in the financials of the company depict a dubious situation because it can be seen that the inventories have significantly increased over the years (Brigs, 2013). In addition, it can be observed from theaccounts receivables of the company that it has also enhanced significantly, which portrays that huge resources are being blocked in the same. In relation to this, it must be taken into account that blockage of funds within a company is a very negative aspect for future aspects because it cannot only hamper the working capital requirements but also affect the entire business as a 3

Auditingwhole. On a whole, all these scenarios must be taken into consideration as soon as possible so that future complexities can be mitigated. Answer to 2There are few inherent risks accommodated in the financials of DIPL Ltd that can pose a big threat to its performance in the long-term. Such inherent risks occur due to omission or errors forming part of the financials of the company. Moreover, owing to ineffective internal control measures, such risks hamper the company’s affairs in a very negative way, thereby putting its goodwill at stake. The inherent risks forming part of the financials of DIPL are as follows:The cashier records every receipt obtained from the debtors on a regular basis but the problem in this scenario is the recognition of such receipts that is done through mailing facilities. In other words, the cashier records the receipt from the mail obtained from debtors wherein the cheques are encompassed. Besides, the policy of recording receipts isconducted in such a way that it has no interconnection with adjustment of accounts receivables and encashment of cheque (Messier, 2013). On a whole, this strategy will play a significant role in establishing big differences. Further, another accountant undertakes the job of reconciling the bank statement at the end of every month that showsineffectiveness on the company’s part in the adoption of a systematic method. Therefore, if the company conducts such strategy, it will result in major complications because of the emergence of inaccuracies in the financial statements. Moreover, the auditors will also be diverted due to such ineffectiveness as they rely on the company’s financials to conduct the audit process and if such financials contain any grave mistakes (unintentionalor intentional), then such errors if not discovered by the auditor will be depicted in the auditor’s report too (Geoffrey et. al, 2016).DIPL Ltd has undertaken a task of installing a new information technology system in its system so that every transaction can be easily recorded with ease. However, the company has not taken into consideration prior analysis and staff control before the installation of such new system. In simple words, lack of ample staff and qualities among them to become accustomed to the new system is vital for effective functioning. Moreover, it can also be viewed that the installation was not investigated properly, thereby resulting into immense complexities for the company (Goodstein, 2011). This can be proved by the fact4

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Auditing and Assurance Services- Project Report
|10
|2670
|156

HI6026 - Audit, Assurance Compliance
|9
|2492
|68

HI6026, Audit, Assurance and Compliance | DIPL Ltd
|8
|2168
|34

Auditing Theory and Practice : Assignment
|9
|1974
|201

HI6026 | Audit and Assurance
|11
|2655
|53

HI6026 Audit Assurance and Compliance Assignments
|10
|1414
|52