Comprehensive Audit Report: DIPL Financial Analysis, Risk, and Fraud

This report provides a comprehensive analysis of an audit conducted on DIPL's financial statements. It begins by applying various analytical techniques, such as benchmarking and ratio analysis, to evaluate the company's financial performance and inform audit planning decisions. The report then identifies and explains inherent risk factors arising from DIPL's business operations, including issues related to marketing, employee proficiency, and the implementation of IT systems. Furthermore, it explores how these identified risks can affect the material misstatement risk in the financial report. The report concludes by identifying and explaining two major fraud risk factors related to misstatements arising from fraudulent financial reporting, emphasizing the importance of assessing and mitigating these risks to ensure the integrity of financial information. The report also highlights the impact of excessive workload on staff, the integrity of management, and the nature of the business entity on the overall risk profile.

Running head: AUDIT
Audit
Name of Student:
Name of University:
Author’s Note:

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Answer 1:
Application of different Analytical techniques to the financial report and information of
DIPL:
Analytical techniques to the report information of financial nature of the DIPL have a
chance of developing the Audit plan. During the time of audit undertaking, the audit plan can be
considered to be a specific guideline that should be followed. More specifically it can be said
that the assessor is assisted in the maintenance of costs of the audits which can be said to be quite
reasonable. This also helps in the avoidance of any sort of problems or misunderstanding with
the clients. The technique or the procedure of the dissemination of the firms’ financial
declaration information is nothing but the analytical approach to the financial statements or
declaration of the DIPL firm. The evaluation process is assisted by a number of mechanisms or
procedures as well as their utility. This also facilitates in the entire procedure as well as its
operations. Use of the analytical approach for analysis of declarations of a financial nature has
certain benefits. Several accountants can decipher valuable information to assist them in arriving
at major business decisions. Financial analysts are also favoured by this.
Analysis of financial declarations of a common reference point is assisted by the
analytical approach of common sizing. It also helps in the comparison of the financial statements
in terms of several time periods or also in terms of different corporations. Various lines of items
mentioned in the financial report as well as their reporting style can be considered by the
assessors. As an example it can be stated that, the nature of item registering, the items being the
net assets as well as the net liabilities should be considered along with the equity of the owners in
the firm’s financial reporting as well as the digression from the normal needs to be examined.

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The analytical method that needs to be utilised for analysis of the plan of audit can be
benchmarking. This can be done as benchmarking is regarded as an analytical procedure. The
variance of the real financial declaration obtained from the benchmark assists in understanding
the deviation as well as helps to analysis the cause of the detected variance for determining the
root cause.
Additionally, ratio analysis can also be considered as an analytical approach of
appropriate nature which helps in comparison of financial declarations as well as assessment of
audit plan.
Explanation of how the results influence the audit planning decisions:
The planning decision results for the plan of audit are necessarily influenced by the
analytical approach results which are adopted for the dissemination of the information from the
statements of financial nature. As an example it can be stated that, the ratio analysis outcomes
like the current ratio of the DIPL firm is calculated to be 1.42 in 2013, 1.46 in 2014 and 1.5 in
2015. Again it can be said that the profit margin that is the profitability ratio is enumerated to be
0.068 in 2013, 0.60 in 2014 and 0.06 in 2015. This particular profit ratio can help reveal the state
or condition of the firm-earned net income as well as the net sales of the DIPL firm. It can be
said that this helps the assessor know if the expenses are high or low and also determine whether
the firm management have the requirement of curtailing budget as also the expenses of the firm
(Johnson et al. 2012). The favourable as well as unfavourable changes in the ratio are possible to
be utilized as a factor in the reference for the audit assessment of the financial health soundness
as well as the DIPL’s overall financial condition. The solvency ratio is also useful for
understanding the desirable and the undesirable trends in the firm’s financial condition. It is

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calculated to be 0.62 in 2013, 0.44 in 2014 and 0.21 in 2015. To understand whether the overall
cash flow of the financial corporation is enough or adequate in order to meet both the short as
well as long term liabilities of DIPL the comparison of the ratio of the three-year period is useful.
It is possible for the assessors to understand the firm’s relative position in connection to the three
year period as well as to analyse the factors leading to the undesirable or unfavourable conditions
of the corporation.
Answer 2:
Identification of inherent risk factors arising from the nature of DIPL’s business
operations:
It can be said that there are several important factors that influence the auditing and
involve incidences of material misstatements in the financial announcements of a specific
concern. It can however be made certain that that different forms of systematic as well as
unsystematic risks exist which help in the reflection of financial misstatements in the
corporations’ financial declarations. It is possible that the detected risks might be due to both
financial as well as non-financial factors which can eventually avert a particular corporation for
reflecting a fair as well as a completely free view for pertinent financial declarations (Blankley,
Hurtt and MacGregor 2012). However it can be said that an evaluator may find it demanding to
detect several risks. It has been opined by William that identified risks can be linked to various
risks which are correlated with omission along with the risks of several diverse errors which are
absolutely unthinkable for a specific book-keeper. As an overall viewpoint, it can be asserted that
the inherent risk has a possibility of arising from the business operations and its nature in regard
to the DIPL.

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From a given study it can be assumed for certain that there are several transactions that
are particularly omitted by the accountants or the management of the corporation of the DIPL.
This can however, sequentially directly lead to the inconsistencies which particularly owe the
ineffectual planning of the marketing, essentially, which are accompanied by the marketing
activities. Moreover it can be said that the financial declarations as well as its evaluation reveal
the fact that firm has absolutely failed to accomplish the profit level which is preferred from the
revenue sales. It might be particularly due to the firm’s management failure in relation to the
identification of the concerned specific requirements as well as the consequent adjustments of
the corporation’s functionalities. It can thus be concluded that it is the failure of the business
organisation to analyse the different macro as well as micro economic factors that might possibly
be in existence in form of the economic, social as well as political factors. As a consequence it is
reflected in the poor figures regarding the sales of the firm and has led to the diverse risks which
are inherent (Srivastava and Mock 2013).
It can also be said that apart from this the workers of the DIPL firm have also led to the
escalation of the overall inherent risks. Due to the lack of proficiency as well as proper
experience of the corporations’ employees there has been considerable escalation of the inherent
risks of the corporation. This is due to the accomplishment of a particular concern regarding the
business which depends on the competency of the staff members. The work forces which are non
proficient can improve the inherent risks as they are bound to do mistakes as for example the
errors of exclusion or removal further leads to the misstated announcements which are pecuniary
(Vona 2012).
Apart from this the other significant aspects that contribute to the risks which are inherent
can be divided or categorised into several segments in a specific manner including environmental

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along with the external facets, material misstatements in the time periods not recent along with
those exercises which are falsified (Budescu, Peecher and Solomon 2012). Several
environmental facts directing the way towards the inherent risks are made up of swift alterations
where there is a possibility of existence of issues related to inventory valuation, stiff competition
of the generic market as well as the shortage of adequate capital. Additionally it can be said that
various material misstatements have been undertaken by the corporation which have the
possibility of redirection towards inherent risks in the periods to come (Abdullatif 2013).
Evaluation of the DIPL’s current case reflects the complexities as well as the difficulties
of the process of CEO succession involve the inherent risks. It can be said that the succession of
the Chief Executive Officer is different as there is a certain individuality of the candidates. It can
however be said that various risks are inherent in the procedure of CEO succession, as well as
the procedure quality regarding the selection, the ease of transition in the handling of the process.
Hence it can be said that process commencement without the strategy compliance, late initiation
of the process, inadequate involvement of the CEO as well as candidate departure may lead to
inherent risks in the company (Trotman and Wright 2012).
Analysis of the given scenario states that the implementation process of the IT system has
led to certain issues. There was not an adequate number of staff to carry out the execution
process as well as the installation. The reconciliation as well as the testing could not be carried
out prior to the new arrangement before the year’s end. The initial testing revealed that the
undertaken transactions were not accurately proportioned to the accurate time period. It also led
to the misstatement of the material owing to the factors hidden which involve error or omission
in a particular financial declaration (Hanlon, Krishnan and Mills 2012).

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Further it can be said that the cash receipt recording by the finance professionals on
behalf of the company have the possibility of leading to the inherent risks in the occasion of
mishandling (Strecker, Heise and Frank 2015). There needs to be a proper sequence to be
followed by the staff in order to ensure that the receivables of the accounts are properly
registered as well as the receivable ledger be properly maintained. Additionally bank
reconciliation also needs to be properly recorded. Also the registering the generated revenue
from the e-book taking reprint of textbooks which were required in the upcoming period have a
possibility of leading to diverse risks due to complexity in the process.
In addition to this the valuation process of several raw materials at certain average costs
was unsuitable as the present paper cost was above the average cost.
Risk and its ability to affect the material misstatement risk in the financial report:
The inherent risks which are identified can be understood as the susceptibility of a
pinpointed assumption association of material misstatement.
Excessive employee as well as management pressure:
Too much of workload on the staff members of the corporation is responsible for poor
bookkeeping. Certain issues like the propensity to encounter issues of cash flow, poor liquidity
as well as poor operating outcomes occur.
Risks of errors or incorrect misinterpretations:
There is an existent reliability as well as intricacy owing to the error risk as well as risk
due to misinterpretation simultaneously.
Integrity of entire management:

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The management at DIPL essentially lacks the integrity requisite and thereafter there is
the expectation to be prepared for reputation as well as the loss in the business community as a
whole.
Unusual management pressure:
There is the probability of misstatements in the pecuniary declarations due to existing
incentives in the management.
Nature of business entity:
DIPL also leads to huge amount of economic growth along with the competitive
circumstances. There is a possibility of these factors affecting the overall inherent risks in the
business entities.
Answer 3:
Identification and explanation of the two major fraud risk factors relating to the
misstatements that arise from fraudulent financial reporting:
Fraud risks lead to considerable losses of assets due to the fraud. The workforce
dissatisfaction due to excessive workload of the employees have the chance of inducing the
involvement in fraud.
The major fraud risks that can occur due to the operations of the DIPL firm include the
engagement of the workforce in the fraudulent actions as well as the dissatisfaction level of the
employees.

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Another fraud risk possible is the risk in reporting financial fraud. During the excessive
expectation from the outside financers for declaration of financial announcements or for meeting
certain goals there is a huge risk of improper financial announcements.
Explanation of identification of the risk factors:
According to the case given, it can be stated that the evaluation process for several raw
material inventories were not suitable due to the cost of paper being much above the average
cost. Financial reporting risk can be detected by the evaluation of financial statements as well
monitor of control statements from time to time.

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References
Abdullatif, M., 2013. Fraud risk factors and audit programme modifications: Evidence from
Jordan. Australasian Accounting Business & Finance Journal, 7(1), p.59.
Blankley, A.I., Hurtt, D.N. and MacGregor, J.E., 2012. Abnormal audit fees and
restatements. Auditing: A Journal of Practice & Theory, 31(1), pp.79-96.
Budescu, D.V., Peecher, M.E. and Solomon, I., 2012. The joint influence of the extent and nature
of audit evidence, materiality thresholds, and misstatement type on achieved audit risk. Auditing:
A Journal of Practice & Theory, 31(2), pp.19-41.
Hanlon, M., Krishnan, G.V. and Mills, L.F., 2012. Audit fees and book-tax differences. Journal
of the American Taxation Association, 34(1), pp.55-86.
Johnson, E.N., Kuhn Jr, J.R., Apostolou, B.A. and Hassell, J.M., 2012. Auditor perceptions of
client narcissism as a fraud attitude risk factor. Auditing: A Journal of Practice & Theory, 32(1),
pp.203-219.
Srivastava, R.P. and Mock, T.J. eds., 2013. Belief functions in business decisions (Vol. 88).
Physica.
Strecker, S., Heise, D. and Frank, U., 2015. Prolegomena of a modelling method in support of
audit risk assessment-Outline of a domain-specific modelling language for internal controls and
internal control systems. Enterprise Modelling and Information Systems Architectures, 6(3),
pp.5-24.
Trotman, K.T. and Wright, W.F., 2012. Triangulation of audit evidence in fraud risk
assessments. Accounting, Organizations and Society, 37(1), pp.41-53.

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Vona, L.W., 2012. Fraud risk assessment: building a fraud audit program. John Wiley & Sons.