Audit, Assurance and Compliance Report

This report covers various aspects of audit, assurance, and compliance, including analytical procedures, inherent risks, and fraud detection. It discusses the financial ratios of Double Ink Printers Ltd., evaluates the impact of these ratios on audit processes, and highlights key areas for auditors to focus on to minimize risks. The report also references relevant literature to support the analysis.

Audit, Assurance and Compliances
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Table of Contents
Solution 1....................................................................................................................................................3
Solution 2....................................................................................................................................................8
Solution 3....................................................................................................................................................9
References.................................................................................................................................................10
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Solution 1
Analytical procedures are the processes of audit by the auditor to take the better clarity and
understanding of clients business and changes in his business. Analytical procedures also helps
to identify the potential risk areas to plan the further audit processes (Moreno, et. al., 2007). It
also encompasses investigation as is necessary of identified fluctuations or relationships that are
inconsistent with other relevant information or that differ from expected values by a significant
amount (McDaniel, et. al., 2007). The auditor in the present scenario examine all the financial
ratios to check the field of investigation that where he need to take extra care and due vigilance
during the audit procedure. Applications of analytical procedure to the financial report
information of Double Ink Printers Ltd. for the last three years are as follows:
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Ratios Explanation Audit Impact
Current Ratio Current ratio of a company
indicates a company’s capacity to
meet its short-term debt liabilities.
Current ratio of the DIPL is
sufficient to pay all its liabilities
with all assets in his hands.
The Auditor has to review the fact
that in the particular case there is
situation attached in which the loan
company BDO finance group
placed the requirement of current
ratio be minimum of 1.5 : 1 on the
minimum side.
Quick ratio Quick ratio of a company indicates
that how a company will meet out
its short term liabilities with its
available quick assets. Quick ratio
of DIPL is adequate though there is
a decrease in current year Quick
ratio but there is not that much
impact of this in financial
statement.
The quick ratio is satisfactory as
per the industry requirement not
much of audit impact is required.
Receivable
Turnover
Receivable turnover can be used as
an indicator that how well a
company manages to use its assets.
Receivable turnover has declined
over a few years which in term
depict the inability of the
organization to convert their
receivable into cash.
The reason behind the delay in
payments is to be checked and it is
to be evaluated by the auditor
whether there is existence of
material misstatement in the case.
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Days in receivable Because of the decreasing Debtor
turnover ratio, there is a diverse
effect over days in receivable.
Inventory Turnover Inventory turnover is not a major
issue as it didn’t deviates that much
in the present scenario.
Not much of impact
Return on Asset Return on asset has declined too
much in current year and it has to
be examined very carefully by the
auditor.
The assets realization is on the
lower side therefore it must be
examined by the auditor.
ROE Return on equity doesn’t fluctuated
that much that it has to be examined
by the auditor.
Not much of impact
Times interest
earned
Debt equity There has been enhancement
witnessed in the segment of debt
part which was nil previously.
Debt ratio is in accordance of the
requirement of the loan company
BDO finance, therefore not a big
issue to be catered as part from
auditor side.
Gross profit GP of the company is decreasing
over a span of time which has to be
seen by the auditor.
The reports and other financial data
presented by the inventory and
purchase department should be
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taken into checked with great
relevance.
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Solution 2
Inherent risk is the situation of risk produced by error in the financial statement when assuming
that there were no internal controls at that time (Hogan & Wilkins, 2008). The auditor in this
context should consider the reasons for the assessment given to the risk of material misstatement
due to particular features of the applicable class of account balance, transactions, or disclosure,
while designing the further audit procedures to be performed and acquire more persuasive audit
evidence the higher the auditor’s assessment of risk (Arens, et. al., 2010). Some of the inherent
risks discovered by the audit in the above case study are as follows:
1. Embezzlement of stock:
The consideration of different currency being used for purchasing the inventory in the accounts
makes it a complex work which in turn can result to material errors in the financial statement of
the organization. While on the other hand the method used for valuing the inventory is average
cost which would lead to major omissions in the books like valuing the rotten inventory.
2. Wrong method for depreciation:
By straight line method the depreciation on printing presses, other production equipment and
other equipment will be same but by the given case study, we know that the printing press can
work only on print-on-demand basis. By the fact we can clearly state that the printing will differ
every year i.e. production will differ every year which means written down value method will
remain best for the presenting true and fair position of the machines and other equipments in
financial statement of the organization (Arens, et. al., 2012).
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Solution 3
False statement or wrong representation when made by an individual intentionally to deceive the
other party is termed as fraud. Fraud is generally done by the individual for his personal interest
or purpose which is inappropriate for the organization. With the growth and magnification of the
organization the DIPL observed errors with its financial statements. The company is appointing a
firm of professional auditing to deal with the current situation and determining and analyze the
current scenario of flaws in the financial statement of accounts of the organization (Hogan &
Wilkins, 2008). As per the new auditing professionals of the company, suggests some of the key
areas where the organization needs to focus to minimize the risk of frauds and embezzlements
which are as follows:
Life of Fixed assets for calculating depreciation
The Auditor is responsible for analyzing and evaluating the reason behind the change of the life
period of the printing press to 30 years by the organization and he should detect that it can only
be done for the profitability of the organization and not for some personal interest and biasness.
Change in IT systems
Auditor should check the proper reason behind the decision of changing the old IT systems by
the company and should also evaluate the fact that whether it is the need of the company to
upgrade or is it just only a chance to defalcate the old information because there was not enough
staff to handle the new IT system at that time.
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References
McDaniel, L. S., & Simmons, L. E. (2007). Auditors' assessment and incorporation of
expectation precision in evidential analytical procedures. Auditing: A Journal of Practice
& Theory, 26(1), 1-18.
Moreno, K. K., Bhattacharjee, S., & Brandon, D. M. (2007). The effectiveness of alternative
training techniques on analytical procedures performance. Contemporary Accounting
Research, 24(3), 983-1014.
Arens, A. A., Arens, A., Best, P., Fiedler, B. A., Shailer, G., Elder, R. J., & Beasley, M. (2010).
Auditing, assurance services and ethics in Australia: an integrated approach.
Arens, A. A., Elder, R. J., & Mark, B. (2012). Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Leung, P., Coram, P., Cooper, B., & Richardson, P. (2009). Modern Auditing and Assurance
Services,(4e). John Wiley and Sons, Australia.
Hogan, C. E., & Wilkins, M. S. (2008). Evidence on the audit risk model: Do auditors increase
audit fees in the presence of internal control deficiencies?. Contemporary Accounting
Research
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