Audit, Assurance, and Compliance Report for DIPL: Risk Factors

This report provides a detailed analysis of audit, assurance, and compliance aspects related to the financial performance of DIPL. It begins by applying analytical procedures to DIPL's financial information for the years 2013-2015, focusing on ratio analysis (profit margin, solvency ratio, and current ratio) and how these results impact audit scheduling decisions. The report then identifies two inherent risk factors arising from the nature of DIPL's trade process, emphasizing the risk of material misstatement in the financial report. Furthermore, it pinpoints two key fraud risk factors associated with misstatements due to fraudulent financial coverage and clarifies how these recognized risk factors influence the conduct of the audit. The analysis incorporates various perspectives from financial accounting, risk management, and auditing literature to provide a comprehensive understanding of DIPL's financial position and the associated audit considerations.

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........................................................................................................................................3
Applying analytical procedures to the financial information for DIPL for the last three years......3
Clarify how the results can manipulate scheduling decisions for the audit for the year ending 30th
June 2015.........................................................................................................................................4
Question 2........................................................................................................................................5
Identifying two inherent risk factors that arise from the nature of DIPL trade process..................5
Risk that affect the risk of material misstatement in the financial report........................................6
Question 3........................................................................................................................................7
Part A...............................................................................................................................................7
Identify two key fraud risk factors relating to misstatements that arise from fraudulent financial
coverage to which DIPL may be susceptible...................................................................................7
Part B...............................................................................................................................................8
Clarify how the risk factors recognized that influence the conduct of the audit.............................8
Reference List..................................................................................................................................9

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Question 1
Applying analytical procedures to the financial information for DIPL for the last three
years
In this given question, it properly explains about analytical process that is present in the
financial report for company such as DIPL. The financial report of company helps in developing
a plan for audit activities (William, Glover and Prawitt 2016). The audit plan is used as a specific
guideline that should be followed while undertaking the audit function. It is important for the
assessor to check over costs of audit at reasonable level as well as assisting in reducing
misunderstanding with the customers. Analytical approach should be used to the financial
declarations for the firm DIPL that means to the process of dissemination of the information that
are accessed from financial declaration of the business enterprise. The given process needs to be
evaluated by utilizing a variety of mechanisms. On using the analytical approach, it is important
to analyze financial declarations where various accountants and financial analysts collect
information that helps in arriving at final decision-making activities (Becker, Stead and Stead
2016).
Analytical approach of common sizing mainly aims at evaluating the financial
declarations to a common specific point. It further help in making the comparison with the
financial statements for given period of time. It is the responsibility of the assessor to look at
different line of items that are already mentioned in the financial report and check the reporting
types (Soh and Martinov-Bennie 2015). For instance, it is all about how items are registered like
net assets as well as net liabilities that goes along with owner equity as shown in the financial
reporting and examining the digression on comparing to normal activities. Furthermore,

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benchmarking is one of the analytical procedures that are present at the time of analyzing plan of
audit. In addition, variation of actual financial declaration from the benchmark aims at
identifying deviation and cause for any of detected variance for determining actual problem.
Therefore, ratio analysis is one of the important tools that is used for essential analytical
approach for comparing financial declarations and assessing the plan of audit activities.
Clarify how the results can manipulate scheduling decisions for the audit for the year
ending 30th June 2015
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
Table: Ratio Analysis of DIPL
(Source: Created by Author)
In this question, it mainly explain the results of the planning that had been done at the
time of audit planning that influences the results of the analytical approach that is adopted for
getting access to information from the financial statements (Simnett, Carson and Vanstraelen
2016). Ratio analysis helps in getting information about the financial position of any business
organization. Profitability ratio is one of the ratios that represent the profitability margin as well
as profits earned for organization and looks at the overall performance of firm. The profitability
ratio of DIPL for three years starting from 2013 to 2015 is 0.068, 0.60 and 0.06. Next is the

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current ratio that helps in assessing the liquidity position of DIPL for three consecutive years and
arrives at 1.42 (2013), 1.46 (2014) and 1.5 (2015). The ideal current ratio is 2:1.
Solvency ratio is calculated for DIPL for three consecutive years and it arrives at 0.62
(2013), 0.44 (2014) and 0.21 (2015). Comparing the results of ratio for three consecutive years
help in getting access to overall cash flow that remains adequate for meeting both short-term as
well as long-term liabilities for DIPL
It is the responsibility of the assessor to understand the relative position of the firm for
three consecutive years as well as analyzing the factors that leads to undesirable or unfavorable
condition of business enterprise (Marques, Santos and Santos 2016).
Question 2
Identifying two inherent risk factors that arise from the nature of DIPL trade process
In this particular question, it is required to identify two inherent risks that are faced by
DIPL in their business operations (Louwers et al. 2015). The material misstated figures are
present in the financial declarations of business and this is one of the significant factors at the
time of conducting audit as well as attracts serious concern. It is important to identify the
financial declarations as mentioned in the financial statements that get accustomed to various
types of systematic and unsystematic risks. These statements portray true and fair view of
financial statement of business that can be either financial or non-financial. It is important for the
assessor for evaluating different types of risks (Becker, Stead and Stead 2016).

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Inherent risk is one of the risks that leads to significant errors that result from activities,
operations as well as environment and nature of accounts. There are various types of risk that
have significant impact on the financial statements. These types of risk relates to identifying the
risk that cannot be predicted by the bookkeepers after correlating to omission as diverse errors
(Kend, Houghton and Jubb 2014).
From the case study, it is noted that the accounts had omitted numerous transactions that
was overlooked by DIPL management. There had been ineffective planning of sales as well as
marketing activities that lead to inconsistencies. It is noted that analysis of financial declarations
of DIPL favors the level of profits that is generated from revenue. Management can face the
failure that needs adjustment in the functionalities as well as identification of requirements that is
essential for maintaining the desirable profits. The business faced failure and they need to
identify macro as well as micro economic factors in terms of social, political and others. DIPL
had poor sales figures that can be seen in the inherent level of risk and leads to risk at the time of
analyzing the financial declarations (Becker, Stead and Stead 2016).
There are different factors that lead to inherent risk into various sectors. Business
enterprise can have material misstatement because of falsification of different items as well as
external factors that concerns environment (Junior, Best and Cotter 2014).
Risk that affect the risk of material misstatement in the financial report
There is various identified risk that need to be taken into consideration as susceptibility
for given assertion in association with material misstatement. Some of the risk is as follows:

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One of the identified inherent risks is excessive pressure on employees as well as
management. It is noted that excessive workload on members of the staff members of
business that leads to poor bookkeeping (Eilifsen et al. 2013). It gives rise to certain
attributes for encountering cash flow issues as well as poor operating outcomes that goes
along with poor liquidity.
One of the identified inherent risks is risk of errors or misinterpreted errors. Error or
misrepresentation hampers intricacy as well as reliability.
One of the identified inherent risks is unusual pressure on management. It may take
happen that management get incentives for their work and it is misstated in the pecuniary
declarations.
One of the identified inherent risks is integrity of the entire management. DIPL
management lack requisite integrity and expects to remain prepared for the loss of
reputation in the overall business community.
One of the identified inherent risks is nature of entity business. The business operations at
DIPL lead to growth to major economic along with competitive circumstances. In
addition, there are various factors that lead to overall inherent risk of business entity that
analyze audit planning structure in the most appropriate way (Arens et al. 2016).

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Question 3
Part A
Identify two key fraud risk factors relating to misstatements that arise from fraudulent
financial coverage to which DIPL may be susceptible
An operating business entity may face substantial loss because of their assets that result
from fraudulent activities. In addition, fraud in business takes place when workers are not
satisfied and that leads to excessive workloads. Furthermore, business enterprise face high fraud
risks because of the management as well as pressure from investors who reports related financial
outcomes for achieving specific target (Cohen and Simnett 2014).
In this case study on DIPL, the company in real faces risk that take place from the nature
how they operate and instigate the workers for engaging in fraudulent activities because of high
level of dissatisfaction. It is because of the novel accounting system that had given rise to
excessive workload as well as work pressure on the workers. DIPL faces fraudulent activities
that give rise to excessive pressure on employees at the time of carrying out the installation
process of IT system (Arens et al. 2015).
Part B
Clarify how the risk factors recognized that influence the conduct of the audit
It is the responsibility of the auditor to identify the risk that is associated with the
implementation of novel IT accounting system for monitoring the activities at various levels. It is

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because of high cost of paper than its average costs, it leads to the process of valuation of raw
materials as adopted by DIPL (Becker, Stead and Stead 2016). The auditors are responsible for
carrying out ways for evaluating financial statements as well as monitoring various mechanisms
for specific period. Therefore it helps in detecting the risks that are properly mentioned in the
financial statements of any business enterprise.

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Reference List
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance services.
Pearson.
Arens, A.A., Elder, R.J., Beasley, M.S. and Jones, J., 2015. Auditing: The Art and Science of
Assurance Engagements. Pearson Canada.
Becker, L.L., Stead, J.G. and Stead, W.E., 2016. Sustainability Assurance: A Strategic
Opportunity for CPA Firms. Management Accounting Quarterly, 17(3), p.29.
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.
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.
Kend, M., Houghton, K.A. and Jubb, C., 2014. Competition issues in the market for audit and
assurance services: are the concerns justified?. Australian Accounting Review, 24(4), pp.313-
320.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.

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Marques, R.P., Santos, H. and Santos, C., 2016. Evaluating Information Systems with
Continuous Assurance Services. International Journal of Information Systems in the Service
Sector (IJISSS), 8(3), pp.1-15.
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.
Soh, D.S. and Martinov-Bennie, N., 2015. Internal auditors’ perceptions of their role in
environmental, social and governance assurance and consulting. Managerial Auditing
Journal, 30(1), pp.80-111.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.