2Question no 1Audit is an independent examination of the financial statements and books of accountsprepared by the management by the auditors of the company to check whether the financials areshowing correct and unbiased view of the state of affairs and to express their opinion thereof. Audit isgenerally conducted using the substantive and analytical procedures. Substantive audit procedures areof great relevance in ascertaining whether all the audit procedures an d cares and check have beenapplied consistently and thoroughly while preparing the books of accounts and preparation of financialsummary. It generally includes vouching of incomes and expenses and verification of assets andliabilities. But when these 2 measures are not sufficient and does not gives the confidence on thearithmetical accuracy of the books of accounts then the auditor has to switch to analytical procedureswhich includes ratio analysis, trend analysis, variance analysis and a study of fluctuation in the numbersbased on the past financial statements. For this, generally the data points include the past yearsfinancial data, the industry trend and average, the budgeted numbers and the forecasted numbers. INcase of DIPL limited, the auditors have also changed as compared to the last year, so substantiveprocedures would not be enough & the new auditors would have to resort to the analytical auditprocedures to gain the confidence on the transparency of the accounts prepared and the verification ofthe opening balances of the client. If post all this comparison, we would come to know that still thedecision cannot be taken whether the books are to materially misstated, then the auditors would haveto increase their scope of check and would have to apply further analytical procedures keeping intoconsideration the maintenance of the internal financial control in the company by the management. Ifthe internal financial controls are adequate, less is the amount of risk, less will be the deviation of theactual from the standard and hence, less is the extent of checking reqd., however, in the other case,weak the leave of internal control maintained by DIPL, the more is the level of analytical procedures tobe applied. Further, the management needs to answer all the queries raised b the new auditors in caseof any clarifications. There are various ways in which the auditor can use these analytical procedures forascertaining the credit viability of the company. The examination of the financial statements of previousyear can be done, by derivation important key financial ratios that help the auditor in forming anopinion on the financial viability of the company. In addition, comparison with the set industry standardscan be done accordingly, by trend analysis and making forecasts and budgeting. If the auditor finds fromany deviation from the expected standards then he needs to find the reason of the same and approachthe management to comment on the same. These are few basic tools of analytical analysis, that can helpthe auditor in making a statement[ CITATION Bae17 \l 1033 ]. In the given case study, financial2 | P a g e

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