Financial Audit, Assurance, and Compliance Report on DIPL Analysis

This report presents an audit, assurance, and compliance analysis of Double Ink Printers Limited (DIPL). It begins with an introduction to the company's operations and the scope of the audit. The report then applies analytical procedures to DIPL's financial statements over a three-year period, including ratio analysis (current ratio, net margin, and solvency ratio) to assess the company's financial health and performance. The analysis reveals trends and insights into DIPL's ability to meet its obligations and its profitability. Furthermore, the report identifies and explains two key inherent risks, such as omission of financial transactions and lack of skilled staff, and their impact on the risk of material misstatements. The report also addresses two major fraud risk factors associated with misstatements arising from fraudulent financial reporting, such as failure in succession process of CEO and issues in the implementation of the system of information technology, analyzing their potential impact on the organization. The conclusion summarizes the findings and recommendations.

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

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Table of Contents
Introduction:....................................................................................................................................2
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................6
Answer to Question 3:.....................................................................................................................9
Answer to Part A:........................................................................................................................9
Answer to Part B:.......................................................................................................................12
Conclusion:....................................................................................................................................13
References:....................................................................................................................................15

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Introduction:
The current assignment aims to evaluate the financial statements of Double Ink Printers
Limited (DIPL). The organisation is engaged in printing books, magazines and advertising stuffs
for publication, advertising and educational industries on a print-on-demand basis. In this
context, Birkey et al. (2016) advocated that print on demand signifies that the publishers could
print the right quantities ordered on the part of retail outlets, instead of advance estimations of
the requirements. The average turnaround time related to printing for DIPL is two days for small-
sized orders and five to ten days for large-sized orders.
Moreover, DIPL has diversified its earnings base by enabling the availability of the
publisher’s title as searchable e-books, which the readers could download directly from the
website of DIPL. Therefore, the organisation has approached Stewart and Cathy to carry out its
audit work, and the senior manager of the organisation would undertake the same. Thus, the
current assignment aims to apply analytical procedures to the information of financial report of
DIPL for the past three years. The second section of the assignment aims to identify and explain
two inherent risks that the organisation could encounter and their impact on the risk of material
misstatements in the financial report. The final segment of the assignment sheds light on
identifying and explaining two major fraud risk factors associated with misstatements arising
from fraudulent financial reporting related to the susceptibility of the organisation.
Answer to Question 1:
The analytical methods relating to the financial statement information of DIPL could help
in forming the overall audit plan. This plan of audit could be considered in the form of a

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particular standard to be adopted while carrying out the overall audit work. Especially, this
enables the assessor in maintaining the overall audit costs at an appropriate level along with
helping in eliminating misunderstanding with the clients (Burton et al. 2014). The analytical
method associated with the financial announcements of DIPL is the method of propagation of
information from its overall financial declarations. There are various mechanisms that help in
conducting the entire process of evaluation. Conversely, in order to seek information, financial
assessors and accountants could use the analytical procedure related to the financial statement
assessment (Byrnes et al. 2015).
There is relationship between common sizing and analytical method through which the
financial declarations could be dissected to a prevalent referential point. This would enable in
contrasting the financial reports in relation to various timeframes or in relation to various
organisations. It is necessary for the auditors to consider the diverse lines of items laid out in the
financial reports and the entire reporting method is verified. For example, there are various ways
through which items like net assets, net liabilities and owners’ equity could be registered in the
financial statements of the organisation and then investigation is made to digress from the normal
situation (Christensen et al. 2016). One of the most crucial analytical processes is benchmarking,
as the plan of audit could be dissected with the help of the same. The deviation of real financial
announcement from the yardstick plays a crucial role in realising the difference along with
helping in evaluating the reason of the identified variance for ascertaining the root cause.
In addition to this, another pertinent analytical procedure is ratio analysis through the
financial declarations could be differentiated and it is possible to analyse the plan of audit. With
the help of ratio analysis, the different aspects of operating and financial performance of the
organisation could be assessed like profitability, liquidity, efficiency and solvency (Cohen,

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Krishnamoorthy and Wright 2017). The trend of these ratios is evaluated to determine whether
they are improving or declining. Furthermore, these ratios could be considered for comparing
across similar type of organisations falling in the same industry to obtain an insight of the
comparative valuations. Thus, it could be adjudged as a cornerstone for fundamental analysis.
Explanation:
There are certain outputs that could be related with planning decisions required to plan
audit and the outputs of the analytical process enforced for release of information from the
financial reports have direct effect on them. For instance, three major ratios have been
considered that comprise of current ratio, net margin and solvency ratio. The detailed breakdown
of these ratios has been depicted in the form of a table as follows:
Particulars Details 2013 2014 2015
Current assets A $ 5,385,938 $ 7,509,150 $ 9,600,929
Current
liabilities B $ 3,780,000 $ 5,120,250 $ 6,397,500
Current ratio A/B 1.42 1.47 1.50
Net income C 2,359,190 2,291,362 2,972,183
Revenue D 34,212,000 37,699,500 43,459,500
Net margin C/D 6.90% 6.08% 6.84%
Total liabilities E=C/D $ 3,780,000 $ 5,120,250 $ 13,897,500
Depreciation F $ 249,375 $ 274,312 $ 472,688
Solvency ratio (C+F)/E 69.01% 50.11% 24.79%

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Based on the above table, it is inherent that the current ratio of DIPL has shown a steady
and slow progress over three-year period from 1.42 in 2013 to 1.50 in 2015, while it was 1.46 in
between the two years. This ratio helps in denoting the ability of an organisation to meet its
existing dues and obligations with the available short-term assets (Cohen and Simnett 2014).
Thus, a higher current ratio is always desirable for an organisation to discharge its short-term
obligations. However, as argued by Earley et al. (2016), a greater current ratio often results in
huge amount of idle cash for the organisation, which might minimise its scope for further
business expansion. In this case, the ratio for DIPL tends to be on the rising scale, which denotes
its increasing ability to deal with the short-term dues.
The net margin computed for DIPL has been obtained as 6.90%, 6.08% and 6.84% in the
years 2013, 2014 and 2015 respectively. This profitability ratio could disclose the position of net
profit earned on the part of the organisation in contrast to the overall net revenues (Jiang,
Messier and Wood 2016). However, the auditor could benefit from this, as overview of the status
of expenditure could be obtained along with identifying the need of whether the organisation
requires cutting down its budget in relation to the rising expenditures. The favourable or
unfavourable modifications in the ratio could be taken into account as a referential factor for
evaluating or auditing the effectiveness of the financial health and the entire financial position of
the organisation DIPL.
In a similar manner, the solvency ratio of DIPL has been obtained as 69.01%, 50.11%v
and 24.79% in the years 2013, 2014 and 2015 respectively. With the help of this ratio, the
effective or ineffective trends could be identified to gain an insight of the overall financial
performance of the organisation. The lower the ratio, the better it is for the organisation, as it
helps in depicting sound financial condition of the organisation (Junior, Best and Cotter 2014).

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Thus, the auditors could be able to obtain an insight of the relative organisational position over
three-year period along with dissecting the influential dynamics leading to favourable or
unfavourable position of the organisation.
Answer to Question 2:
In particular, there are certain attributes related to auditing that constitute of evidence of
material misstatements in the financial declarations of a particular entity. However, it is of
utmost importance for ensuring the availability of systematic as well as unsystematic risks
signifying the method towards financial irregularities of the firms (Kend, Houghton and Jubb
2014). Both the financial and non-financial factors could be termed as the reason behind such
detected risks. This could limit the ability of the organisation in signifying fair and true picture of
the pertinent financial declarations. On the other hand, an assessor might find it demanding in
identifying various risks. In order to support this statement, Kilgore, Harrison and Radich (2014)
are of the view there is direct association between the identified risks and the risks pertaining to
errors and omission that is extremely difficult for a bookkeeper to realise. Hence, the nature of
business operations associated with DIPL could be the reason that has resulted in inherent risk
for the organisation.
Based on the provided case, it could be ensured that the accountants or the management
of the organisation DIPL omitted various financial transactions. However, this could help in
sequential leading towards inconsistencies especially due to inappropriate planning of primarily
the marketing as well as sales activities (Knechel and Salterio 2016). In addition, the analysis of
the financial announcements of the organisation denotes the fact that the organisation has not
achieved the desired level of profit from the overall revenues generated. Especially, this might be

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because of the failure of the management of DIPL in identifying the specific needs and
subsequent adjustment of the overall organisational functionalities. To conclude, it could be said
that there is failure on the part of DIPL in assessing the prevalent economic, social and political
factors having impact on its overall business operations. This is depicted considerably based on
the sales figure of the organisation along with various inherent risks (Lenz and Hahn 2015).
Besides these risks, the staffs working in DIPL have raised the entire inherent risks.
Because of the lack of proficiency and experience of the staffs in the organisation, there is
substantial escalation of the overall inherent risks. This is because the achievement of a
particular business entity depends on the ability of the staffs in relation to business expansion
and future growth (Louwers et al. 2015). The unproductive workforce could raise the inherent
risks, as they are bound to conduct mistakes. Such mistakes could be in the form of expulsion
error leading the way towards the inappropriate financial announcements.
Along with this, there is contribution of important factors towards inherent risk and they
could be divided into different segments like environmental and external factors, material
irregularities and unscrupulous practices in previous years. The diverse environmental factors
directing the way towards inherent risk constitutes of raid modifications, in which there would be
complexities related to inventory valuation, shortage of capital and intense competition in
generic market (Marques, Santos and Santos 2016). Moreover, there is possibility of material
irregularities on the part of the organisation that would cause inherent risk in the future years.
The current case dissection of DIPL signifies that several complexities are inherent in the
organisation due to the incompetency in the succession process of the CEO; thus, causing
inherent risk. Primarily, the CEO succession could be adjudged as different and the candidates

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need to be extreme individuals (Ojala et al. 2014). However, there are certain risks, which are
evident in the succession process of the CEO, quality of method of selection and ease of
transition with the handling of the overall process. Therefore, commencement of the process
without conformance to the strategy, delayed start of the procedure, insufficient engagement of
the CEO and turnover of staffs leaving the organisation might result in generation of inherent
risks.
The assessment of the provided case denotes that the method of implementation of the
system of information technology has resulted in various issues. Due to the lack of availability of
employees in managing the procedure of execution and installation along with performing the
reconciliation and testing before the new arrangement prior to the period end, DIPL has been
struggling to carry out its business operations in an effective fashion. In addition, the primary
testing disclosed that various transactions conducted are not allocated rightly to the accurate
timeframe. Thus, it has resulted in material misstatements due to inherent factors, which could
primarily be error or omission in a particular financial announcement (Peters and Romi 2014).
Furthermore, the record of cash receipts on the part of the financial analysts of the
organisation might generate inherent risks, if they are not managed effectively. The staff
members are expected to follow the right sequence so that there is effective registration of
account receivable and maintenance of ledger related to account receivable. Along with this,
proper records need to be kept in relation to the bank reconciliation (Pitt 2014). The registration
of revenue formation from e-books and the textbook reprint consideration required in future
could result in certain inherent risks due to complexity related to the process. The method of
assessment of valuation related to various raw material inventories at specifically average cost is
not effective due to the greater value of the paper cost in contrast to the average cost.

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There are certain inherent risks identified, as the vulnerability of a certain assertion
associated with material irregularities and they are discussed as follows:
 The increased work pressure on the staff members of DIPL leads to inaccurate
bookkeeping. This results various attributes like the proclivity in encountering cash flow
problems, ineffective operating results and poor liquidity (Ratzinger-Sakel and
Schönberger 2015).
 The reliability and convolution because of risks of errors and simultaneous
misrepresentation is evident.
 Lack of integrity is observed in the DIPL management team, which makes it ready to face
any type of reputation downfall in the entire business community (Srivastava, Rao and
Mock 2013).
 The management often conducts irregularities in the financial statements, as they could
be rewarded with unjust incentives.
 DIPL results in growth to significant economic and competitive scenarios. Moreover,
these influential dynamics might have direct impact on inherent risk of DIPL so that the
evaluation of the structure of audit planning is carried out effectively.
Answer to Question 3:
Answer to Part A:
As pointed out by Vasarhelyi et al. (2014), fraud risk results in considerable asset losses
because of fraud. As the staffs of DIPL are not motivated due to additional workload imposed
upon them, there is higher possibility that fraudulent activities might occur. Along with this, the
investors have strong expectations regarding the financial performance of the organisation as

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well as the management for increasing its overall revenues and income. In addition, there is
strong pressure in declaring particular financial outcomes in a bid for preventing the generation
of guarantees.
Kinds of risks Identification
Workforce involved in fraudulent tasks The basic fraud risk expected to occur from the
DIPL operations includes workforce
involvement in fraudulent behaviours due to
lower level of staff satisfaction. Based on the
case study, it has been identified that the
organisation has imposed huge pressure to
obtain an effective accounting system. Such
extra burden could lead to serious fraud at the
time the organisation is planning to install a
new information technology system. This
denotes that the staffs might be engaged in
fraudulent behaviours along with managing the
reconciliation method in a wrong path; hence,
leading to material misstatement (William Jr,
Glover and Prawitt 2016).
In addition, the case study depicts that the
inaccurate management of the execution
process associated with the implementation of
IT for the system of accounting might result in

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inaccurate apportionment of various
transaction around the financial year. Hence,
loss is expected due to fraud risk and material
misstatement.
Risk of financial reporting When there is additional pressure regarding the
expectations from external financiers in
declaring particular financial declarations or
from management in meeting particular
performance targets or meeting certain goals to
qualify for debt acquisition, greater risk is
associated with the incorrect financial
declarations. From the balance sheet statement
of DIPL, the net revenues have increased over
the years coupled with rise in gross income as
well as net income. Moreover, the existing and
total assets of DIPL have escalated as well.
The case study reveals that it has sought a loan
amounting to $7.5 million from BDO Finance.
This loan has been taken based on an
agreement that needs DIPL in maintaining the
desired liquidity and solvency positions.
Apart from this, the provided case depicts that
the organisation has maintained a current ratio

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of 1.5, while the solvency ratio is below 1. It
implies that such urgency might push DIPL to
handle the financial ratios in relation to credit
accumulation. In essence, the inability of DIPL
in maintaining the desired benchmarks could
make the organisation ineligible to obtain loans
from BDO Finance (Wong and Millington
2014).
Answer to Part B:
The provided case study clearly inherits that the process of valuing the inventories
pertaining to raw materials particularly at average cost has been inappropriate due to the reason
of excessive paper cost compared to average cost. The risk associated with identifying the
fraudulent activities involved in initiating the proposed IT system could be carried out and it
needs to be made by verifying different activities at different phases. The risk of financial
reporting could be performed through dissecting the financial statements coupled with
monitoring control mechanisms with the passage of time (Yee et al. 2017).
Conclusion:
The above evaluation clearly inherits that there is relationship between common sizing
and analytical method through which the financial declarations could be dissected to a prevalent
referential point. This would enable in contrasting the financial reports in relation to various
timeframes or in relation to various organisations. Various item lines could be considered on the

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part of the assessor laid out in the financial reports for verifying the overall reporting method.
The assessment of the provided case denotes that the method of implementation of the system of
information technology has resulted in various issues.
Due to the lack of availability of employees in managing the procedure of execution and
installation along with performing the reconciliation and testing before the new arrangement
prior to the period end, DIPL has been struggling to carry out its business operations in an
effective fashion. When there is additional pressure regarding the expectations from external
financiers in declaring particular financial declarations or from management in meeting
particular performance targets or meeting certain goals to qualify for debt acquisition, greater
risk is associated with the incorrect financial declarations.
Both the financial and non-financial factors could be termed as the reason behind such
detected risks. This could limit the ability of the organisation in signifying fair and true picture of
the pertinent financial declarations. On the other hand, an assessor might find it demanding in
identifying various risks. Along with this, there is contribution of important factors towards
inherent risk and they could be divided into different segments like environmental and external
factors, material irregularities and unscrupulous practices in previous years. The diverse
environmental factors directing the way towards inherent risk constitutes of raid modifications,
in which there would be complexities related to inventory valuation, shortage of capital and
intense competition in generic market.

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