Financial Analysis and Audit Assurance Report for DIPL Company

This report analyzes the financial statements and audit of DIPL, an Australian printing company. It examines the company's financial position through ratio analysis, including liquidity, profitability, and capital structure ratios, over a three-year period. The analysis reveals changes in business strategies and their impact on financial factors, highlighting potential misstatements and inherent risks. The report identifies key fraud risk factors, such as interest amount discrepancies and changes in the debt-to-equity ratio, which suggest manipulation of financial information to potentially reduce tax liabilities and impress stakeholders. The conclusion emphasizes the unethical practices observed, including the manipulation of financial statements and the recording of transactions to serve the company's interests. The report also references various sources related to audit risk, risk management, and accounting principles.

Audit Assurance and Compliances

Contents
Introduction................................................................................................................................3
Summary of Case Study.............................................................................................................4
Question 1..................................................................................................................................5
Question 2..................................................................................................................................7
Intentional Misstatement........................................................................................................7
International and domestic reporting......................................................................................7
Question 3..................................................................................................................................8
Key fraud risk factor:..............................................................................................................8
Identification of key fraud risk factors...................................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................10

Introduction
DIPL is an Australian company and the business of company is printing. This report
encompasses the analysis of financial statement of the company to assess the financial
condition of the company. DIPL`s case is being studied to analyse the whole information
about the changes made by the company.

Summary of Case Study
Stewart and Kathy has done the audit for the company and through analysing the information
of business it is concluded that some changes were made by the company in context to
strategies. Changes were being made by the company in context to the IT system, variations
in BOD members, annual meeting discussion etc.

Question 1.
DIPL`s financial data is analysed to assess the information about company`s financial
position. Financial statement and ratio analysis of company of former three years are as
follows:
Statement for analytical analysis (presenting calculation of ratios)
Computation of ratio analysis
Liquidity ratio 2013 2014 2015
Current ratio 1.424851323 1.46655925 1.500731379 0.017751573
Quick ratio 0.82797619 0.944834334 0.847272997 0.007768664
Working capital 16,05,938.0 23,88,900.0 32,03,429.0 0.331580049
Profitability Ratios
2013 2014 2015
Operating Profit Margin 0.100977727 0.089047255 0.08898715 -0.039581594
Net Profit Margin 0.068957968 0.060779639 0.06838972 -0.002746837
Return on Capital Employed 0.4 0.3 0.2 -0.160459244
Return on Equity 0.257834973 0.212484827 0.24261746 -0.019673454
Return on Total assets 0.182458623 0.144075478 0.113667738 -0.125673945
Debt equity ratio
Capital structure ratio 2013 2014 2015
Debt- equity 0.413114754 0.474816041 1.134444326 0.582025183
Interest coverage ratio 40.94205904 40.1257067 4.78608308 -0.294367022
Efficiency ratio
Efficiency ratio 2013 2014 2015
Receivable turnover ratio 11.08401323 9.2532887
Creditor turnover ratio 12.68542199 11.23585229
Inventory turnover ratio 12.83396414 10.75765974
Assets turnover ratio 2.614942828 2.066946288

Company has made alterations in its business strategies and the financial factors are also
influenced through these diversifications (Whittington, 2012). The high turnover of company
has resulted as enhancement of working capital by 32, 03,429 AUD and current ratio i.e.
1.77%. Quick ratio portrays that liquidity is managed effectively for managing resources and
to meet requirement of small debts.
However, profitability ratio depicts falling of profit as the profit volume has fallen in year
2013 by 3.95%; whereas in year 2015, profit rate is being predicted as .88 %. Various ratios
are assessed such as- inventory turnover ratio, efficiency ratios, Assets turnover ratio,
receivable turnover ratio, and Creditor turnover ratio; to evaluate the company`s performance
in perspective to its short term debt in addition to working capital (Whittington, 2012).
The analysis of statement could conclude that modifications done in the company`s
operations has influenced the ratios. It has complicated the job of the auditors as there is
misstatement in the books of accounts.

Question 2.
Assessment of risk is mandatory for the DIPL to identify the risk factors. The case study,
analysis indicates that inherent risk could be faced by company perspective to auditing
compliances. The inherent risk factors are:
Intentional Misstatement
Inherent risk escalates due to the fraudulent activities pursued by accountant to prepare
financial statement in devoid of practicing accounting standards. Information assessed
through the case study depicts that there was escalation in the revenue but the profit margin
of the company was portrayed in less amount. This aspect may be represented to be safe from
being paying tax. As a result, DPIL, indulged itself into fraudulent practices, by showing less
profit to save the tax amount. The company might has recorded false transaction to reduce the
profit level (Burgon, 2013).
Another analysis of case study, depicts that impressive growth and performance of company
was portrayed. However there is certainty, that company`s escalated growth was represented
to impress the shareholders. Some transactions created the financial information more
complex; as, high salary was paid to workers and high rate of depreciation was being
charged. This concludes misstatement in accounts and that can be a factor for inherent risk.
International and domestic reporting
The accounting procedures were not being followed while preparing the financial statements.
It is obligatory for business organization to follow the GAAP and IFRS`s principles.; so that
international level, requirement of accounting could be followed. This aspect benefits the
company to acquire investment from FDIC (Kimmel & Weygandt , 2013). Non-compliance
of accounting rules can create risk for the company and the business can also be get
influenced. Hence it is obligatory for company to follow the general accounting principles
while preparing books of accounts.

Question 3.
The factors which are the reasons behind the escalation of risks are discussed below:
Key fraud risk factor:
a. Interest amount- In the year 2013 company`s interest amount was 84379.0 AUD,
whereas in the year 2015, the amount of interest was 808038.0 AUD. This means,
the change in amount of interest over two years is 285.87%. Company took huge
loan to sustain its liquidity position and funds. The loan amount was used by the
company for payment of its taxes (Prasad, 2012). Revenue of company escalated
last year which means it is required by DPIL to make imbursement of high tax
return to Australian government. To benign from not paying the tax, higher interest
amount was portrayed by DPIL in the financial statement with a plan for paying
less tax to Australian government.
b. Debt to equity ratio- The analysis of debt to equity ratio states that there was
increment in the ratio of 1.13 in 2015. DPIL`s none of the project required such a
massive amount. Consequently this huge amount was shown in financial statement
to impress the shareholders and government.
Identification of key fraud risk factors
Analysis of the financial factors indicates that manipulation was done and the financial
information is related with the fraudulent activities ( Handsworth, 2012). The auditor also
studied the processes of business, such as purchase and inventory and other business
operations, like- finance department process, printing process, cash receipts, and e-book
revenue process. Information was being taken from the meeting of board of directors and
company`s financial statement. The risk inherent factors were also identified by the auditor.

Conclusion
The report concludes that unethical practices were carried out by the company. The
transactions were recorded by the company as per their own interest, to save the tax.
Financial statement of the company were also prepared by manipulation of the financial
information; so that shareholders could be impressed and they could make more investment
in the business.

References
Fazal, . H., 2011. What is Audit risk?. [Online]
Available at: http://pakaccountants.com/what-is-audit-risk/
Handsworth, A., 2012. Risk Management Audit Guide. s.l.: Xlibris Corporation. .
Burgon, R., 2013. The Five Step Guide to Risk Assessment. [Online]
Available at: https://rospaworkplacesafety.com/2013/01/21/what-is-a-risk-assessment/
[Accessed 22 8 2017].
. F., 2015. Ethics. s.l.:Pearson Education.
Kimmel, P. D. & Weygandt , J. J., 2013. Accounting Principles. s.l.:s.n.
Prasad, M. V. K., 2012. The components of audit risk. [Online]
Available at: http://www.thehindubusinessline.com/news/education/the-components-of-audit-
risk/article2910361.ece
[Accessed 22 8 2017].
Spacey, J., 2016. What is an Inherent Risk?. [Online]
Available at: http://simplicable.com/new/inherent-risk
[Accessed 22 8 2017].
Whittington, O. R., 2012. Auditing and Attestation. s.l.: John Wiley & Sons.