Audit Assurance and Compliance Assignment: DIPL Case Study Analysis

This assignment is a comprehensive analysis of the audit, assurance, and compliance aspects related to Double Ink Printers Ltd (DIPL). The student begins by explaining the role of analytical procedures in audit planning, emphasizing their importance in providing reasonable assurance that financial statements are free from material errors and conform to reporting standards. Common size statements, benchmarking, and ratio analysis are discussed as key tools. The assignment presents a detailed ratio analysis of DIPL's financial performance from 2013 to 2015, including current, profitability, and solvency ratios, and their audit implications. The second part of the assignment identifies two inherent risk factors arising from DIPL's business operations, such as incorrect interpretations due to management pressure and the nature of the business entity, and explains how these risks could lead to material misstatements. The third section focuses on fraud risks associated with material misstatements in financial reporting, specifically addressing worker involvement in fraudulent activities and the pressure on the organization to meet certain financial targets. The assignment concludes by highlighting how these risks impact the conduct of an audit and the potential for misstated financial declarations.

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

1AUDIT ASSURANCE AND COMPLIANCE
Answer to Question 1:
The preparation of plan of audit is provides with substantial support with the
implementation of analytical procedures. In the event of carrying out the audit plan of DIPL
(Double Ink Printers limited), auditors would be provided with the required instructions and
directions. For averting any confusions that may rise with the clients while carrying out audit and
to maintaining the audit cost at specified level, audit plan assist in doing so. Objective of auditor
while carrying out audit of financial declarations provide by DIPL is to give reasonable
assurance that they are free from frauds and material errors. Analytical procedures is the
evaluation of financial statements of organization by analysing the plausible relationship
between nonfinancial and financial data. Analytical procedures will enable obtaining reasonable
assurance by providing reasonable assurance that in order for financial declarations tobe made in
conformity with the reporting standards, there is no requirement of making material
modifications. Application of analytical procedures comes with underlying premise that
plausible relationship is expected to exist in contrary conditions (Abidin and Baabbad 2015).
Auditors would assisted in planning nature, extent and timing of audit procedures.
There are specific mechanisms through which the evaluations of financial statements are
done. Accountants and financial analyst are assisted in taking accounting decisions with the help
of analytical tool that assists them. Analytical produce of common size statements helps in the
dissemination of the financial statements from the referring points that is pertinent. Common size
statement analysis helps in making the comparison of the financial performance of an
organization over two different period and comparison of two statement of tow organizations.
Some benefits arise from the common statement analysis that helps in differentiating financial
statements from specific timelines.

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Several lines of items that is used in the preparation of financial statements needs to be
checked by accountants and financial analysts while adopting the analytical procedures. Some of
the items can be adjudicated while detouring them at the time of investigation that includes
owner liabilities and equity along with assets. Benchmarking is another method of analytic
procedure of audit analysing the existing variance or deviation in preparing financial statements
(Kritzinger and Barac 2017). Another primary tool that can be used for carrying out analytical
procedure is ratio analysis. Ratio analysis helps in measuring the trend of financial performance
over the period. Auditors would able to ascertaining the performance trend of organization that
will help in assessing the presented financial declaration.
The last three years financial performance of DIPL can be presented in the table given
below:
Particulars 2013 2014 2015
Profit margin 0.068 0.60 0.06
Solvency ratio 0.62 0.44 0.21
Current ratio 1.42 1.46 1.50
Three types of financial ratio that is current ratio, profit ratio and solvency ratio is
depicted in the table that will assist the auditor in identifying the financial performance trends
and at the same time disclosing the factors that might have contributed to fall or increase in debt
amount or any expenses. Using the tool of ratio analysis would help the auditor in recognizing
whether the expenses or costs incurred are reasonable enough to stand the overall costs. In event

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of any uncertainties or some unfavourable happenings, whether the management of organization
have sufficient resources in place to handle such circumstances (Strawser 2013).
Ratio Explanation Audit impact
Current ratio Current ratio of DIPL on other
hand, has witnessed an increase
sine year 2013. Current ratio for
financial year 2015, 2014 and
2013 stood at 1.5, 1.46 and 1.42
respectively. This would depict
whether he current assets have
been enough to meet the short
term obligations of DIPL.
Financial accountants and
analysts are provided with the
opportunity of financial position
of DIPL over the time of three
years. Feasibility of prevailing
financial position and health of
organization can be easily
evaluated by auditors by utilizing
this tool. This would help in
conducting the audit by proper
procedures.
Profitability ratio It can be seen from the table that
profitability ratio for three
consecutive year that is financial
year 2015, 2014 and 2013 was
reported to be at 0.06, 0.06 and
0.068 respectively.
Fall in ratio would help auditors
in ascertaining the reason of
decline that may be due to any
excessive expense or fall in sales
value. This will help in depicting
the amount of net profit in
relation to net sales value.
Solvency ratio Now, looking at the figure of
solvency ratio, there was a
consistent fall in the value since
year 2013. Solvency ratio for
This would assist auditors in
determining the unfavourable and
favourable movement of the
organization in terms of its

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2015 stood at 0.21, for year 2014
stood at 0.44 and for financial
year 2013, value stood at 0.62
respectively. Fall in solvency
ratio is indicative of the fact that
proportion of debt to equity of
DIPL has reduced.
financial stability. Cash flow of
organization has been ascertained
in terms of cash flow and
maintaining it at adequate level
for meeting long term and short
term obligations.
Answer to Question 2:
Identification of two inherent risk factors that would arise from the nature of operation of
business of DIPL:
The overall operations of business of DIPL would results in generation of certain types of
risk while carrying out audit procedures. Financial declaration of organization can be affected by
inherent risks that may lead to material misstatement. After the evaluation of case study, it was
ascertained that some of transactions has not entered by the management and this has been
directly linked with the inconsistencies that was existing with sales and marketing department in
organization (Coetze and Lubbe 2014). Assessment of report and various financial statements, it
was found that targeted level of net revenue and profit was failed to accomplish. Two inherent
risks associated with the business operations of DIPL are depicted in following table.
Inherent risk Reason for risk to be inherent Risk of material misstatement
Incorrect interpretation
resulting from pressure of
management and stakeholders.
Reason for this particular
inherent level of risks is the
inappropriateness and
Carrying pout of day to day task
by employees has become a
difficult job after the

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mismanagement of operations of
business. Some of the influence
concerning macro and micro
economic factors was not being
able to assess by management
such as political, economic and
social factors. Therefore, the
inherent risk level is linked with
the falling profit and declining
revenue of organization. Sales
and marketing activities of
organization can be
inappropriately planned resulting
form inconsistencies in their
activities. Moreover, there can be
failure on part of management to
make the required or needed
adjustments by identifying them
specifically. There can be macro
or miro economic facets that
might be existing in the form of
social, political events that might
not be properly analysed by
business. Diversity in inherent
risks is also reflected in the poor
sales figure. Some of other
employment of novel accounting
system. It is certainly possible
that there exist some incentives
of oat of management that might
lead to misstatement in the
declarations of financial
statements. There has been
considerable escalation in the
level of inherent risks resulting
from lack of proficiency and
experience of employees. Such
employees are bound to make
some mistakes in recording of
financial transactions and in
installation of the accounting
system that might lead to
eruption of some sort of errors.

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factors that would attribute to the
inherent risks arose from the
valuation of inventories, required
capital shortage and inflexible
competition prevailing in generic
market. Some of the material
misstatement might be
undertaken by organization
resulting from the
misinterpretation of certain type
of activities (Arens et al. 2015).
In addition to this, some of
inherent risks might arise from
the installation and reconciliation
of the new accounting system.
Nature of business entity DIPL might be facing
competitive circumstances that
would lead to their growth along
the economic line. Risks of
inventory obsolesce is faced by
entities that is fast changing and
are adapting to latest technology.
As in the case of DIPL, any rapid
changes in the products offered
by organization would very quick
Auditors will be able to conclude
that the inherent level of risk
concerning the business nature is
very high. This has high chances
that the transactions would not be
properly recorded or maintained.
There would be the risks of
materially misstating the
financial declarations or
information. Probability that the

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makes inventories obsolete. Risk
also arises due to the improper
valuation of inventories as such
valuation might be
inappropriately done by
management and employees
working therein (Titer 2013).
This type of risk is inherent in
the nature of business entity.
transactions recorded in the
financial statements are not in
compliance with the financial
accounting framework that would
lead to fraud or errors in their
presentation. It can be explained
with the help of an instance, that
is the cost of inventories are
assigned on the method of
valuing inventories that is not
acceptable under particular
reporting format or standard. All
these can make the financial
statements and their components
materially misstated. Whenever
organization does not have any
internal control, the risks of
financial information being
materially misstated are
reasonably higher. The process of
carrying out audit and
determining the level of risks
involves is also dependent upon
the identification of any other
inherent risk in previous or

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current period (Wang and
Cuthbertson 2014).
Answer to Question 3:
Two types of fraud risks associated with the material misstatement arising from
fraudulent activities of financial reporting that is susceptible to DIPL are as follows:
Types of fraud risks Impact of identified risks in conducting audit
Workers getting involved in some fraudulent
activities
DIPL has been experiencing shortages of workers
and they have been forced to work on the
installation of the novel accounting system. Fraud
in DIPL might arise due to excess workloads on
existing employees for carrying out the tasks if
installing and reconciliation the process of
accounting system. All this would results in
creation of dissatisfaction among employees that
might force them to engage in the fraudulent
activities. Certain transactions of organization can
be carried are recorded in appropriate way resulting
from inappropriate handling the implementing the
information technology of the updated accounting
system. Fraud may also arise due to the workers
not having sufficient knowledge to run and install
the machines and this would create a sense of
dissatisfaction among employees and making them

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indulge in fraud activities (Appelbaum et al
.2017).
Risks of fraud concerning financial reporting of
DIPL
An organization has high risk of making improper
financial declarations and announcement due to the
pressure from management and external
stakeholders to maintain or declare particular and
prescribed financial announcements. Organization
might be required to maintain specific level of debt
for gaining amount of loan or debts by the financial
institution or loan provider. Credit rating agencies
would ranks the organization depending upon their
credibility and all these might pressurize
organization to make inappropriate declarations of
financial information. Financial transactions can be
materially misstated due to the pressure of
shareholders and management for maintaining
particular level of returns. By analysing the DIPL
financial statement for period 2013 to 2015, it can
be seen that revenue has increased over the years.
Total assets have also increased over the year.
After conducting the analysis of case study, it was
found that acquisition of loan by DIPL has been
asked by lending institutions to maintain a
particular level of debt ratio and it should not be
more that one and this indicates that financial