Audit, Assurance, and Compliance Report: DIPL Case Study Analysis

This report provides a detailed analysis of audit, assurance, and compliance practices within the context of a case study involving DIPL. It begins with an examination of analytical procedures, including the use of financial ratios like current ratio, profit margin, and solvency ratio to assess the company's financial health and performance. The report then delves into the identification and impact of inherent risks within DIPL's business operations, such as complexities in transactions, CEO appointments, and record-keeping systems, and how these risks contribute to material misstatements in financial reporting. Finally, the report explores the susceptibility of DIPL to fraud, identifying specific risk factors related to financial reporting, employee engagement, and IT system implementation, along with the potential impact of these risks. The analysis references academic literature to support the arguments and findings.

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, assurance and compliance
Name of the student
Name of the university
Author note

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Table of Contents
Question 1..................................................................................................................................2
Impact of the outcome on the audit plan....................................................................................2
Question 2..................................................................................................................................4
Inherent risk associated in the DIPL business operation...........................................................4
Impact of inherent risk on material misstatement......................................................................5
Question 3..................................................................................................................................6
Susceptibility of misstatement owing to the risk of fraud..........................................................6
Identification of the risk factors.................................................................................................7
Reference....................................................................................................................................8

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Question 1
The analytical procedures incorporate the examination of financial data. The auditor
uses the analytical approach with respect to the finance related explanation of DIPL to
separate the issues into the segments required for comprehending it. Further, the analytical
procedure for the annual reports is among the different financial review method that assists
the auditor to comprehend the business and any adjustments in the matter of the customer and
to perceive the potential hazard divisions for arranging the other audit techniques. However,
the utilization of analytical method can be done through various approaches and various
analysts, accountants and auditors understand the data in various ways for to take the final
decisions of the business (Burk and Hendry 2014).
For comparing the annual reports of the company, any of the items from the the
annual reports can be selected as per the professional and judgemental approach of the
analyst. For example, the analyst can choose the shareholder’s equity to assess the solvency
of the company or he can choose the net income and sales to measure the profit earning
ability of the company. Then the outcome can be compared with the benchmark, if any, to
measure the variance and plan the audit accordingly (Hayes, Wallage and Gortemaker 2014).
Impact of the outcome on the audit plan
Generally, the financial performance and the reporting framework greatly affect the
planning of the audit. Moreover, the data management, availability of data of client’s
business greatly affects the audit planning decisions.
Ratio calculation
Calculation of ratio

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Ratio Formula 2013 2014 2015
Current ratio Current assets / Current Liabilities 1.42 1.47 1.50
Profit margin ratio Net income / Net sales 0.07 0.06 0.07
Solvency ratio Equity / Total assets 0.71 0.68 0.47
Analysis of ratio
Ratio Analysis and interpretation
Current ratio It is identified that the current ratio of the company is 1.50, 1.47
and 1.42 for the year 2015, 2014 and 2013 respectively.
Therefore, it can be said that the company is in a comfortable
position for paying their short-term liabilities. However, as the
current ratio for all the three years are quite high, there is a
possibility that the company is not utilising their working capital
efficiently (Knechel and Salterio, 2016).
Profit margin ratio The company has stable profitability margin and it is 6% to 7%
for all the three years under consideration. This profitability
margin will assist the analyst to assess whether the profitability
margin is low or high based on the type of the business and plan
the audit accordingly. Further, it will assist the analyst to measure
whether the expenses were high and required to be cut-off or not.
Solvency ratio As the solvency ratio of the company for the past three years are
0.71, 0.68 and 0.47 that indicates that the solvency of the
company is getting worsened and the matter of fact regarding this
shall be investigated properly and plan the audit accordingly
(Nalewaik and Mills 2016).

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Question 2
Inherent risk associated in the DIPL business operation
While the auditor is carrying out the financial audit, the inherent risk is likely to takes
place while the transactions to be audited are of complex nature and the estimation are not
simple and easy. The inherent risk takes place while there is an error or omission in the
annual statement of the company for a particular or for various transactions. The inherent
risks are considered as most dangerous as it least likely that the inherent risks will be
controlled through regular measures. This kind of inherent risk shall be analysed critically
based on the nature and type of the client’s business (Li, Simunic and Ye 2017). While
planning the audit, the auditor shall take into consideration various factors related to the
inherent risks and internal control. If the auditor finds that the internal control is not
sufficient, then the standards for detection risk must be set at higher level.
It was found from the given case study of DIPL that different items were not included
in the financial statement of the company. This may head towards the inconsistencies
regarding the financial reporting. Further, it was also found that some of the employees from
the company were also involved in the enhancing the inherent risk.
Inherent risk Normally, appointment of the CEO is considered different as
compared to others. However, it was found from the DIPL case
study that the CEO’s appointment exposed the company to the
inherent risk with regard to the involvement of complexities and
difficulties. Various inherent risk those were found with regard to
the appointment procedure of the CEO were the transition

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process of the ex-CEO, Ms. Rebcca Styles and initiation of the
work procedure by Mr. William Jackson. For these activities the
compliance procedures were not followed and therefore it led to
inherent risk. moreover, the remuneration package of Mr.
Jackson that was based on performance was also led to enhancing
the inherent risk
Inherent risk Record maintenance system of the company was also associated with
the inherent risk, particularly the receipt of cash and maintaining the
records regarding that by the cashier of DIPL, Mr. Judy Bones. DIPL
mostly receive the payments through the electronic fund transfer and
then maintain the receipt of the copy through downloading it from
mail. The receipts are then reconciled with the batch posting and these
all procedures are carried out at the end of each month by Mr. Roger
only. With regard to the, nature of business of the company it is
suggested that the reconciliation should have been carried out more
frequently otherwise it will enhance the inherent risk. Further,
revenue from reprint of the text books and sale of the e-book leads to
inherent risk as there is a loophole in maintaining the records.
Impact of inherent risk on material misstatement
If the internal control is not sufficient then the control risk shall be assessed properly
to plan the audit accordingly. The effect of the inherent risk on material misstatement of the
financial statement is as follows –

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 Business performance – the inherent risk will definitely misrepresent the business’s
performance level for the company. Misrepresentation of performance will definitely
misinform the creditors, stakeholders, inventors and potential investors of the
company. Further, the management will not be sure regarding what decisions are to be
taken within the required time frame (Brazel and Schmidt 2016).
 Management’s integrity – inherent risk will lack the objectivity and integrity aspect
that will affect the long-run objective of the company.
 Financial statement misrepresentation – the inherent risk will generally misrepresent
the annual report of the company to the external as well as internal users like potential
investors, debtors, creditors and shareholders.
Question 3
Susceptibility of misstatement owing to the risk of fraud
Generally, a business is susceptible to various risks due to fraud. Therefore, the
management shall take appropriate measure while carrying on their activities (Eutsler,
Nickell and Robb 2016).. These risks have great impact on different factors like nature and
value of the business, simplicity in selling the asset, availability of cash.
Fraud risk Business operation of DIPL is associated with the risk that the reporting
system of the financial data. The financial data play important role in
taking the decisions by the external as well as the internal users of the
data. As it is identified that the company has availed a loan for the
amount of 7.5 million. Moreover, the company’s current ratio indicates
that they are not utilizing their working capital efficiently (Boyle, DeZoort
and Hermanson 2015). These all factors will definitely put some pressure
on the employees for maintaining the financial ratio, which in turn, may

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influence them to involve in any kind of fraud.
Fraud risk The risk factors are also associated with the worker’s engagement procedure. It
is regarded as fraudulent as the employers are not satisfied from the company’s
activities. Further, it is mentioned in the case study that the board put
exceptional pressure on the employees. Due to this fact the installation of new
accounting system was managed however by the IT department. It was also
found that Mr. Andy Rogers, the IT manager was not convinced with the
installation system. Further, DIPL did not have required employees to carry out
the installation procedure. Moreover, it was found from the primary testing that
the closing entries were not allocated to the relevant period. This may lead to
exposure to fraud risk.
Identification of the risk factors
It is identified from the case law that there is likely to be fraudulent process for the
installation of the new IT machine (Boritz, Kochetova-Kozloski and Robinson 2014).
Further, the procedure for the valuation of most of the materials are valued on average cost
method and it is exposing the company towards fraud risk.
The risk factors are identified through identification of potential risk events that are
required to be removed. Further, the company has document that provides the guidance for
performing the assessment of fraud risk. The assessment of fraud risk is considered as
effective if it is able to identify the areas where the frauds may take place. Therefore,
activities related to control shall consider the individual from within as well as outside the
organization and the scheme related to fraud to minimize the chances of fraud risk.