Audit, Assurance and Compliance Report

This report delves into the audit, assurance, and compliance processes for Double Ink Printers Limited (DIPL). It includes a thorough analysis of financial ratios such as profitability, liquidity, efficiency, and solvency over three years. The report identifies key risk factors affecting financial reporting a...Read More

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

2AUDIT, ASSURANCE AND COMPLIANCE
Table of Contents
Question 1........................................................................................................................................2
Part A...............................................................................................................................................2
Explanation of analytical procedures that is important for preparation of financial reports of
DIPL................................................................................................................................................2
Profitability Ratio............................................................................................................................2
Gross Profit Ratio........................................................................................................................2
Net Profit ratio.............................................................................................................................4
Return on assets...........................................................................................................................5
Return on Equity..........................................................................................................................6
Liquidity ratio..................................................................................................................................7
Current ratio.................................................................................................................................7
Quick ratio...................................................................................................................................8
Efficiency ratio................................................................................................................................9
Inventory turnover ratio...............................................................................................................9
Solvency Ratio...............................................................................................................................11
Debt to Equity Ratio..................................................................................................................11
Part B.............................................................................................................................................12
Impact of analytical review on audit planning for the year ending 30th of June 2015...................12
Question 2......................................................................................................................................13

3AUDIT, ASSURANCE AND COMPLIANCE
Classification of inherent risk factors based on nature of business operations of DIPL...............13
Question 3......................................................................................................................................14
Part A.............................................................................................................................................14
Identification of key risk factors that relates to misstatement of financial reporting....................14
Part B.............................................................................................................................................15
Effect of risk factors on audit conduct...........................................................................................15
Reference List................................................................................................................................16

4AUDIT, ASSURANCE AND COMPLIANCE
Question 1
Part A
Explanation of analytical procedures that is important for preparation of financial reports
of DIPL
Ratio analysis is the most widespread tools used by companies for analyzing a business
financial standing (William, Glover and Prawitt 2016). This analysis is very easy to understand
and compute that makes it so famous than any other accounting measurement tools. It is used by
large and small companies for comparing their financial information. This ratio does not take
into account the company size or the industry. This analysis is just a raw computation of
financial position as well as performance of any business enterprise irrespective of nature and
size of operations. In similar ways, this study uses ratio analysis measurement tool for predicting
the financial performance of Double Ink Printers Limited. The study had used four broad
categories of ratio analysis such as profitability ratio, liquidity ratio, efficiency ratio and
solvency ratio (Simnett, Carson and Vanstraelen 2016).
Profitability Ratio
Gross Profit Ratio
Double Ink Printers Limited
2013 2014 2015
Gross Profit 17.55085935 16.126208 15.1969075

5AUDIT, ASSURANCE AND COMPLIANCE
6
Table: Gross Profit Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
2013 2014 2015
Double Ink Printers Limited
14
14.5
15
15.5
16
16.5
17
17.5
18
Gross Profit
Gross Profit
Graph: Gross Profit Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
The above table and graphs portrays gross profit ratio of DIPL for three consecutive
years. To that, it is noted that there had been constant decline in gross profits and this means that
the company has not improved in their profitability position over these years (Sierra‐García,
Zorio‐Grima and García‐Benau 2015). In the year 2013, the gross profit ratio of DIPL arrives at
17.55, further there was slight decline of gross profit at 16.12 (2014) and finally at 15.19 for the
year 2015.

6AUDIT, ASSURANCE AND COMPLIANCE
Net Profit ratio
Double Ink Printers Limited
2013 2014 2015
Net Profit 6.895796796 6.0779639 6.83897192
Table: Net Profit Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
2013 2014 2015
Double Ink Printers Limited
5.6
5.8
6
6.2
6.4
6.6
6.8
7
Net Profit
Net Profit
Graph: Net Profit Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
The above table and graphs portrays net profit ratio of DIPL for three consecutive years
(Carson, Redmayne and Liao 2014). To that, it is noted that there had been decline in net profit

7AUDIT, ASSURANCE AND COMPLIANCE
from 2013 to 2014 and then there was increase in net profit for the year 2015. In the year 2013,
the net profit ratio of DIPL arrives at 6.89, further there was slight decline of net profit at 6.077
(2014) and finally increase at 6.83 for the year 2015.
Return on assets
Double Ink Printers Limited
2013 2014 2015
Return on assets 18.24586234 14.407547
8
11.3667738
Table: Return on assets Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
2013 2014 2015
Double Ink Printers Limited
0
2
4
6
8
10
12
14
16
18
20
Return on assets
Return on assets
Graph: Return on assets Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)

8AUDIT, ASSURANCE AND COMPLIANCE
The above table and graphs portrays return on assets ratio of DIPL for three consecutive
years. To that, it is noted that there had been constant decline in return on assets and this means
that the company has not improved in their profitability position over these years (Cohen and
Simnett 2014). In the year 2013, the return on assets ratio of DIPL arrives at 18.24, further there
was slight decline of return on assets at 14.40 (2014) and finally at 11.36 for the year 2015.
Return on Equity
Double Ink Printers Limited
2013 2014 2015
Return on Equity 25.78349727 21.248482
7
24.2617459
Table: Return on equity Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
2013 2014 2015
Double Ink Printers Limited
0
5
10
15
20
25
30
Return on Equity
Return on Equity
Table: Return on equity Ratio of DIPL for the year 2013, 2014 and 2015

9AUDIT, ASSURANCE AND COMPLIANCE
(Source: Created by Author)
The above table and graphs portrays return on equity ratio of DIPL for three consecutive
years. To that, it is noted that there had been decline in return on equity for the year 2013 and
2014 and then increase in return on equity for the year 2015. In the year 2013, the return on
equity ratio of DIPL arrives at 25.78, further there was slight decline of return on equity at 21.24
(2014) and finally at 24.26 for the year 2015.
Liquidity ratio
Current ratio
Double Ink Printers Limited
2013 2014 2015
Current Ratio 1.424851 1.466559 1.500731
Table: Current Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)

10AUDIT, ASSURANCE AND COMPLIANCE
2013 2014 2015
Double Ink Printers Limited
1.38
1.4
1.42
1.44
1.46
1.48
1.5
1.52
Current Ratio
Current Ratio
Graph: Current Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
The above table and graphs portrays current ratio of DIPL for three consecutive years. To
that, it is noted that there had been constant increase in current ratio and this means that the
company has improved in their liquidity position over these years. In the year 2013, the current
ratio of DIPL arrives at 1.42, further there was slight increase of current ratio at 1.46 (2014) and
finally at 1.50 for the year 2015.
Quick ratio
Double Ink Printers Limited
2013 2014 2015
Quick ratio 0.82797
6
0.944834 0.847273
Table: Quick Ratio of DIPL for the year 2013, 2014 and 2015

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(Source: Created by Author)
2013 2014 2015
Double Ink Printers Limited
0.76
0.78
0.8
0.82
0.84
0.86
0.88
0.9
0.92
0.94
0.96
Quick ratio
Quick ratio
Graph: Quick Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
The above table and graphs portrays quick ratio of DIPL for three consecutive years. To
that, it is noted that there had been increase in quick ratio from 2013 to 2014 and then decrease
for the year 2015 and this means that the company has improved in their liquidity position over
these years. In the year 2013, the quick ratio of DIPL arrives at 0.82, further there was slight
increase in quick ratio at 0.94 (2014) and finally at 0.84 for the year 2015.
Efficiency ratio
Inventory turnover ratio
Double Ink Printers Limited
2013 2014 2015
Inventory Turnover ratio 12.50228261 11.8366586 8.815931109

12AUDIT, ASSURANCE AND COMPLIANCE
Table: Inventory turnover Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
2013 2014 2015
Double Ink Printers Limited
0
2
4
6
8
10
12
14
Inventory Turnover ratio
Inventory Turnover ratio
Graph: Inventory turnover Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
The above table and graphs portrays inventory turnover ratio of DIPL for three
consecutive years. To that, it is noted that there had been constant decline in inventory turnover
and this means that the company has not improved in their efficiency position over these years.
In the year 2013, the inventory turnover ratio of DIPL arrives at 12.50, further there was slight
decline of inventory turnover at 11.83 (2014) and finally at 8.81 for the year 2015.

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Solvency Ratio
Debt to Equity Ratio
Double Ink Printers Limited
2013 2014 2015
Debt to equity ratio 0.413115 0.474816 1.134444326
Table: Debt to equity Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
2013 2014 2015
Double Ink Printers Limited
0
0.2
0.4
0.6
0.8
1
1.2
Debt to equity ratio
Debt to equity ratio
Graph: Debt to equity Ratio of DIPL for the year 2013, 2014 and 2015
(Source: Created by Author)
The above table and graphs portrays debt to equity ratio of DIPL for three consecutive
years. To that, it is noted that there had been constant increase in debt to equity and this means

14AUDIT, ASSURANCE AND COMPLIANCE
that the company has not improved in their solvency position over these years. In the year 2013,
the debt to equity ratio of DIPL arrives at 0.41, further there was slight increase in debt to equity
at 0.47 (2014) and finally at 1.13 for the year 2015.
Part B
Explain results that influences planning decisions for the audit for the year ending 30th
June 2015
Analytical approach can be used by the auditor where they can analyze the results that widely
influences audit planning function. Ratio analysis had been used in the case study as it provides
information and depicts the financial position of DIPL for the year ending 30th June 2015. It is
necessary for the auditor to evaluate the financial health of DIPL after identifying favorable and
unfavorable changes by using ratio analysis as a point of reference. It is important for an auditor
to compare ratios for three consecutive years and then interpret the information for evaluating the
capacity of business to find out whether business can meet short-term or long-term obligations.
As far as profitability ratio is concerned, DIPL had not at all improved in terms of profitability
for the year 2015. The company had seen decline in their profits that give rise to going concern
issues faced by the company (Eilifsen et al.2013). As far as liquidity ratio is concerned, DIPL
had shown improvement in terms of liquidity for the year 2015. DIPL faces increased financial
risk over the three consecutive years. It is all about the disclosures that are related to risk and
need proper information mentioned in the reports (Crockett and Ali 2015)As far as efficiency
ratio is concerned, DIPL has not improved in terms of efficiency. The company engages in
proper writing back allowances for any loss that prevails in their stocks. It is important to check

15AUDIT, ASSURANCE AND COMPLIANCE
over the inventory performance allowance for such validity of actions (Junior, Best and Cotter
2014).

16AUDIT, ASSURANCE AND COMPLIANCE
Question 2
Classification of inherent risk factors based on nature of business operations of DIPL
Double Ink Printers Limited
Risk Material misstatement in the financial statement
Financial risk
The risk that takes place within a business when the
company could not pay off their long-term
liabilities within the stipulated time frame (Knechel
and Salterio 2016)
DIPL was involved in manipulating their financial
records in order to maintain current ratio and debt
to equity ratio as desired by the lending company.
For this reason, DIPL should inflate their current
assets by increasing values of receivables or
inventory so that current assets are properly
maintained and the company can pay off day-to-
day expenses. It is also necessary for the company
to inflate the equity valuation through increased
value of retained earnings so that the company can
maintain agreed debt to equity ratio in the near
future (Lenz and Hahn 2015).
Information technological risk
The risk that takes place when any business decides
to implement information technology. This
decision can even have negative impact if there is
deficiency in the informational technology control
at any point of time (Louwers et al. 2015).
DIPL could not balance between new accounting
system and existing accounting software. This led
to issues that relates with improper recording of
transactions within stipulated time frame. The
company failed to follow accounting concept of
periodicity as that had adversely affected the
company such as getting access to inaccurate

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results and unfavorable profitability position. As
well (Rahim and Idowu 2015).
Question 3
Part A
Identification of key risk factors that relates to misstatement of financial reporting
Risk factors Material misstatement in the financial reporting
Debt covenants DIPL faced several risk while operating the
business such as debt covenants. Finance
Department of DIPL was in huge pressure as they
had to find ways where the company can meet
various debt covenants. A loan of 7.5 million had
been taken by DIPL from BDO Finance Limited in
the year 2015 on main two conditions. If DIPL
failed to cover any of the conditions, then the loan
will be taken back by BDO Finance Limited. In
order to maintain current ratio, DIPL had inflated
the current assets. The company had even
manipulated with retained earnings figures that are
not acceptable any time.
Nature of control environment DIPL had faced several risks while operating the
business such as nature of control environment.

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This risk factor directly link to the fact that there
are some fraudulent activities practices in the
financial statement of DIPL. This can be poor
defined job description or poor segregation of work
among the staff members. The company even
manipulates with the stock figures by showing less
stock at the time of cash arrival. Overall, there is
improper system used by the company and efforts
need to be made to mitigate the fraudulent activities
as far as possible.
Part B
Effect of risk factors on audit conduct
 Effect of debt covenants on audit plan- In order to meet the debt covenants, DIPL should
balance their current assets and current liabilities. They need to decide whether there is
any inflation present in current assets or deflation present in current liabilities. It is
important for the company to involve in careful verification of retained earnings.
 Effect of control environment on audit plan- In order to have a control over the
environment, DIPL should keep a balance of stock so that there is no excess or shortage
of it as both are not favorable condition. It is important that the quantity of orders placed
for the stock purchase and stock received should match. The company should not engage
in any of the manipulation activities as that will worsen the overall environmental factors
of business enterprise.

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Reference List
Carson, E., Redmayne, N.B. and Liao, L., 2014. Audit market structure and competition in
Australia. Australian Accounting Review, 24(4), pp.298-312.
Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A
Journal of Practice & Theory, 34(1), pp.59-74.
Crockett, M. and Ali, M.J., 2015. Auditor independence and accounting conservatism: Evidence
from Australia following the corporate law economic reform program. International Journal of
Accounting & Information Management, 23(1), pp.80-104.
Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance
services. McGraw-Hill.
Junior, R.M., Best, P.J. and Cotter, J., 2014. Sustainability reporting and assurance: A historical
analysis on a world-wide phenomenon. Journal of Business Ethics, 120(1), pp.1-11.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.
Lenz, R. and Hahn, U., 2015. A synthesis of empirical internal audit effectiveness literature
pointing to new research opportunities. Managerial Auditing Journal, 30(1), pp.5-33.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.
Rahim, M.M. and Idowu, S.O. eds., 2015. Social Audit Regulation: Development, Challenges
and Opportunities. Springer.

20AUDIT, ASSURANCE AND COMPLIANCE
Sierra‐García, L., Zorio‐Grima, A. and García‐Benau, M.A., 2015. Stakeholder engagement,
corporate social responsibility and integrated reporting: an exploratory study. Corporate Social
Responsibility and Environmental Management, 22(5), pp.286-304.
Simnett, R., Carson, E. and Vanstraelen, A., 2016. International Archival Auditing and
Assurance Research: Trends, Methodological Issues, and Opportunities. Auditing: A Journal of
Practice & Theory, 35(3), pp.1-32.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.