Audit, Assurance, and Compliance: Financial Report Analysis for DIPL

This report provides a detailed analysis of the audit, assurance, and compliance practices of Double Pink Printers Limited (DIPL). It begins by highlighting the importance of analytical methods, such as ratio analysis and benchmarking, in developing an effective audit plan. The report then delves into the identification of various risk factors within DIPL, including those related to management failures, inexperienced staff, and CEO succession issues. Furthermore, it explores different types of risks, specifically fraud risk and risks associated with financial reporting, providing insights into their potential causes and impacts. The report examines the financial performance of the company through ratio analysis, revealing trends in current, profit margin, and solvency ratios. It also discusses the challenges faced by DIPL, such as the lack of raw material valuation based on current costs. The report concludes by emphasizing the importance of addressing these risks to ensure the company's financial stability and integrity. This comprehensive analysis is valuable for understanding the complexities of audit, assurance, and compliance in a real-world business context.

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

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Table of Contents
Answer to Question 1......................................................................................................................2
Answer to Question 2......................................................................................................................4
Answer to Question 3......................................................................................................................6
Answer to Part A.........................................................................................................................6
Answer to Part B..........................................................................................................................8
References........................................................................................................................................9

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Answer to Question 1
Analytical method has utmost significance for the analysis and evaluation of the financial
information of the companions from the financial reports. At the time of developing the audit,
plan for the Double Pink Printers Limited (DIPL), the analytical method of financial information
is considered as most valuable aspect. It needs to be mentioned that the audit plan of the
companies provides necessary direction or path to the auditors at the time of audit process. On a
more specific note, audit plan helps the auditors to maintain the audit cost in order to avoid
misunderstanding with the audit clients (Anandarajan, Anandarajan and Srinivasan 2012). The
analytical approach of the financial information of the DIPL refers to the process of spreading
the financial information from different kinds of financial declaration of the company. It can be
seen that there are different kinds of mechanism that help to carry on the analytical process of
financial information. With the assistance of analytical methods for the assessment of financial
information, the financial managers and accountants of the company use this information in
order to take different kinds of financial and accounting decisions. In addition, with the help of
common size analytical approach of financial information, the financial managers of the
companies become able to dissect the financial declaration of the company from different
financial perceptions. One of the major benefits of this is that it helps to provide support in the
development of financial reports and compare the financial reports of the companies for different
financial years (Healy and Palepu 2012).
With the help of analytical methods, the financial managers of the companies can use
various financial items from the financial report and they can verify the process of financial
reporting of those items. For example, the financial reporting process of net liabilities and
owner’s equity can be considered in this regard along with the digression of these items. It needs

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to be mentioned that Benchmarking is considered as the major analytical methods of financial
information and it can also be used for the development of organization’s audit plan (Leang,
Zahariev and Gordon 2012). With the assistance of benchmarking process, financial managers
can identify the variances in the financial reports of the companies (Rolstadas 2013). Apart from
this, the actual reason of these variances along with their root causes can be identified. Along
with the process of benchmarking, Ratio Analysis is considered as another major analytical
method of the financial information. Ratio analysis helps in the development of audit plan by
comparing the financial statements of two or more companies (Healy and Palepu 2012).
Explanation: According to the provided case study, the adopted analytical method has important
effect on the preparation of audit plan. In addition, it also has its importance in spreading the
financial information among various financial and accounting departments of the company. As a
part of analytical process, the following ratio analysis is provided:
Particulars 2013 2014 2015
Current ratio 1.42 1.46 1.50
Profit margin 0.068 0.60 0.06
Solvency ratio 0.62 0.44 0.21
Table 1: Ratio Analysis
(Source: as created by Author)
From the above table, it can be seen that there is an increase in the current ration of the
company from 2013 to 2014 that is 1.42 to 1.46; and in 2015, it became 1.50 in 2015. Major
fluctuation can be seen for the company over the three years that reveals the amount of net profit

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of the company from net sales. Apart from this, with the help of profitability analysis of the
company, the financial managers get insight about the expenditures of the company. Most
importantly, with the help of this analysis, the financial managers can get the insight about the
effectiveness of the company’s budget along with the diversification needs of the businesses
(Higgins 2012).
The auditors of DIPL can get an idea about the current financial position of the company
by observing the ratios and financial difficulties. From the above table, it can be seen that there is
a decrease in solvency ratio of the company from 2013 to 2015. This particular trend in solvency
ratio can helps the financial managers in the determination of financial performance of the
company. With the help of this ratio analysis, the financial managers can ascertain the amount of
cash flows in order to meet both long-term and short-term obligations of the company (Brigham
and Houston 2012). Moreover, it can be said that the evaluation and comparison of the
company’s performance and ratios make the financial managers enable to determine the financial
performance and position of the company overt the period of three years. Apart from this, the
financial managers can ascertain whether the current financial position of the company is
favorable or not. In case the situation is not favorable, the financial managers of the companies
need to take corrective measures to revive the financial position of the company. Thus, based on
the above analysis, it can be said that the analytical methods of financial information has major
values for the companies (Brigham and Ehrhardt 2013).
Answer to Question 2
In the current business operations of DIPL, it can be seen that there are certain risk
factors. According to the provided case study, it can be seen that the management of DIPL has

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failed in entering certain financial transactions of the company. As per the observation this
omitting mistakes of the management has direct connection with ineffective and inconsistent
planning of various marketing and sales activities of the company. As per the total financial
analysis of DIPL, the failure of the company to achieve the targeted profit margin out of the total
sales of the company can be seen. The ineffectiveness and inefficiency of the management team
regarding business operations of the company can be held responsible for this. Hence, it can be
observe that the management of the company has totally failed to foresee or gauge the effects of
various macro and micro factors on the business operations of DIPL; some of these factors are
political factors, economic factors, social factors and others. Thus, based on the above
discussion, it can be said that lower profit marking along with lower revenue of the company
contributes to the birth of inherent risks in the company (Grant 2016).
From the provided case study, it can be seen that the number of staffs in the company has
increase, the workforce of the company is inexperienced, and they lack professionalism. Thus,
this lack of experience and professionalism of the employees of DIPL leads to the birth of
inherent risks in the company. It is a universal fact that the success of any business largely
depends on the employees of those companies. As the employees of the company lack
experience and efficiency, it is natural that they will make mistakes during their jobs and this
process leads to the inherent risks of the companies. Apart from this issue, the case study of
DIPL also indicates that there are some major issues in the company regarding the succession of
the CEO of the company. This issue around the succession of CEO is a major influencer behind
the development of inherent risks in the company. Thus, the ineffective method of selecting the
CEO of the company also leads to the inherent risks. In addition, it can be seen that DIPL does
not have enough employees or staffs for properly carrying on the business operations of the

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company. This reason also contributes to the development of inherent risk factors in the business
operations of DIPL. Thus, based on the above discussion, it can be seen that the above discussed
reasons are the major reasons that are contributing towards the development of inherent risk
factors in the company (Weil, Schipper and Francis 2013).
Explanation: From the provided case study, it can be seen that there is a huge amount of work
pressure on the employees of DIPL. As a result of this excessive workload, inefficiency can be
seen in the process of bookkeeping of the company. This poor process of bookkeeping leads to
different kinds of issues like issues regarding cash flows, issues regarding the solvency and
liquidity of the company and many others. Apart from this, there is a major negative effect of
the financial errors of the company one the financial reports as this process lacks effective
interpretation. Thus, the management of the company needs to play an important role in order to
solve these issues in the company (Arens, Elder and Mark 2012). According to the provided case
study, it can also be seen that the management of DIPL largely lacks integrity and honesty and
for this reason, there is a possibility that the company may lose its reputation in the market. As
DIPL has great incentive structure for its management, the management of the company is under
massive pressure for performance. Thus, all these processes lead to the material misstatement of
the financial reports.
Answer to Question 3
Answer to Part A
Types of Risk Identification and Details
Fraud Risk According to the provided case study of DIPL, it can be seen that the main
risk of fraudulent is involved with the employees of the company, as they

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can be involved in the fraudulent activities. The main reason behind this risk
is major dissatisfaction among the employees of the company. As per the
provide case study of DIPL, it can be seen that there is massive pressure on
the employees from the end of the boars in order to adopt the new
accounting system. As the adoption of this accounting system creates
massive pressure on the employees, there is high risk that the employees
may be involved in fraudulent activities. Thus, in order to cope up with the
process of reconciliation, the employee of the company may take the way of
fraudulent and this process leads to the material misstatement of the
financial statements. As per the provide case study, due to the ineffective
implementation of the new accounting software, the accountants of the
company failed to correctly record some of the primary accounting and
financial transactions for the financial year. As a result of the inexperienced
and inefficient employees of the company, there is a high chance of fraud
risk. It is expected that the employees of the company will make mistakes in
their jobs that will lead to fraud risk of the company. Apart from this, fraud
risk can also be found in the process to select the succession of CEO of the
company. As a result of this process, there can be high chance of inherent
risks in the company (William Jr, Glover and Prawitt 2016).
Risk in
Financial
Reporting
In case of the business operations of DIPL, another major risk can be seen in
the process of financial reporting of the company. In case the stakeholders
of the company have major financial expectation from the company’s
financial performance, there is a high chance of frauds in the financial

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reports from the end of the company. It has been seen that the management
of the company manipulates the financial statements of the company so that
the stakeholders can see that the company has financial growth and
performance. Thus, it can be observed that the fraud risk in financial
reporting is one of the major risks in the companies (DeFond and Zhang
2014).
Answer to Part B
According to the provide case study, there is a massive lack in the raw material valuation
of DIPL that is based on the process of average cost. The main reason is that the current cost of
paper is higher than average cost. Thus, it is not en effective process. The primary risk in the
implementation process of the new accounting software can be identified with the help of
monitoring various phases of task in the organization. On the other hand, the analysis and
evaluation of the financial reports of the companies helps the management to detect the fraud
risk related with financial reporting. As per the earlier discussion, the analysis can be done with
the help of various analytical mechanisms that is benchmarking, ratio analysis and others. It is
crucial for the management of DIPL to conduct the analysis and evaluation process on a time
basis (Wang, Li and Li 2012).

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References
Anandarajan, M., Anandarajan, A. and Srinivasan, C.A. eds., 2012. Business intelligence
techniques: a perspective from accounting and finance. Springer Science & Business Media.
Arens, A.A., Elder, R.J. and Mark, B., 2012. Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage
Learning.
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage
Learning.
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting
and Economics, 58(2), pp.275-326.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Healy, P.M. and Palepu, K.G., 2012. Business analysis valuation: Using financial statements.
Cengage Learning.
Healy, P.M. and Palepu, K.G., 2012. Business analysis valuation: Using financial statements.
Cengage Learning.
Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Leang, S.S., Zahariev, F. and Gordon, M.S., 2012. Benchmarking the performance of time-
dependent density functional methods. The Journal of chemical physics, 136(10), p.104101.
Rolstadas, A. ed., 2013. Benchmarking—theory and practice. Springer.

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Wang, B., Li, B. and Li, H., 2012, June. Oruta: Privacy-preserving public auditing for shared
data in the cloud. In Cloud Computing (CLOUD), 2012 IEEE 5th International Conference
on (pp. 295-302). IEEE.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.