Audit Assurance and Compliance Report: DIPL Audit Analysis and Risks

This report provides a comprehensive analysis of audit assurance and compliance, focusing on the financial performance and associated risks of DIPL. It begins by examining analytical procedures used in the audit process, including ratio analysis and common size statements, and how these procedures inform audit planning decisions. The report then identifies and explains the inherent risks arising from the nature of DIPL's business operations, such as incorrect interpretations, improper recording of transactions, and challenges related to CEO succession. Furthermore, the report explores two significant fraud risks linked to fraudulent financial reporting, including pressures from stakeholders and employee dissatisfaction. The impact of these fraud risks on the audit plan is also discussed. The analysis incorporates financial data from 2013 to 2015, highlighting trends in profitability, solvency, and current ratios to support the risk assessments and recommendations.

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

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Answer to Question 1:
Analytical procedures form an important part of the process of audit that involves the
evaluation of financial information of the organization made by the study of plausible
relationships between non-financial and financial data. The audit plan of DIPL can be developed
through the adoption of analytical procedures of the financial declarations given. There can be
variations in the identified in the relationships in the particular conditions and this involves
business changes, accounting changes, any unusual transactions, material misstatements and
random fluctuations. Planning of audit will help the auditors in maintaining the cost at prescribed
level and avoiding of any misinterpretation that can arise with the clients. The dissemination
process that is involves in analysing the financial declarations provided by DIPL is depicted in
the analytical procedures. The financial and business analysts would be able to take crucial
decisions concerning the business by deciphering the financial information’s using the
procedures of analytics (Beasley 2015).
The procedures adopted by the auditor in analysing the financial information is ratio
analysis and common size statements analysis. Common size helps in comparing the financial
declarations made by organization at different any of time or it makes the comparison between
the financial declarations information provided by two organization at one point of time. Items
that are recorded using some basis are also analysed using this method. Auditors from the
analytical procedures obtain the observation of consistency of the records amount in the financial
information. Expectations of auditors are developed for desired level of assurance from the
analytical procedures. The analysis of audit plan is done by the adoption of another analytical
procedure that is benchmarking. Any variations or deviation from the expected value id depicted
by framing the benchmarking of the actual financial declaration. Ratio analysis will help the

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auditors in ascertaining the trend of performance of organization over period (Byrnes et al.
2015).
Impact of planning decisions of audit from the results obtained:
Calculation of financial ratios:
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
Results obtained by auditors from the dissemination of financial information using the
analytical approach might influence the planning decisions concerning audit. Analysis can be
done by observing the current ratio, profitability ratio and solvency ratio. The ratios of DIPL for
three consecutive years would depict their financial performance overtime.
Ratio Explanation impact on audit
Current ratio Current ratio for year 2015, 2014
and 2013 stood at 1.5, 1.46 and
1.42 respectively.
Using the ratio analysis tool
helps the auditors in assessing
whether the expenses of
organization are reasonable and
whether the costs incurred are too
high and the management of DIP

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has necessary resources and they
take necessary measures to
restrain any unfavourable
happenings.
Solvency ratio Solvency ratio of DIPL for
finance year 2013, 2014 and
2015 stood at .62, 0.44 and 0.21
respectively.
The auditor would use factor of
assessment in analysing whether
the organization is experiencing
sufficient cash flow for meeting
the overall and short-term
obligations faced by
organizations (Baker et al. 2014).
Profitability ratio Profitability ratio for the year
2013 stood at 0.068, for financial
year 2014 it stood at 0.60 and
0.06 in year 2015 respectively.
Analysis of this particular ratio
depicts the growth of net income
as against net sales of DIPL.
Relative position of organization
can be easily ascertained with the
application of the tool of ratio
analysis and recognition of the
factors that has led to any
undesirable situations obtained.
Answer to Question 2:
Identification of inherent risk factors that arise from nature of business operations of DIPL
The various types of the risks assessed for the audit process has been comprised based on
the incidence associated to the material misstatements in the financial announcements of the
specific concerns. It can be however be discerned that the various types of the considerations

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associated to the systematic and the various types of the unsystematic risks to state about the
various types of the risks for the financial declarations of the corporation. The various types of
the other risks detected have been applicable to both financial and the non-financial factors
which can be averted in a particular organisation thereby reflecting the true and the fair view of
the various types of the financial declarations. Nevertheless, the evaluator may find it demanding
for the detection certain risks. The different types of the correlated risks have been included for
omission along with the varied range of errors and not thinkable for a particular bookkeeper. In
this aspect the inherent risk may arise due to the overall nature of the business organisation of
DIPL (Duncan, B. and Whittington 2014).
The significant concerns towards the various types of the inherent risks has been
categorised as per environmental and material misstatements with the falsified exercises. The
environmental facets has been further seen to be directed towards the inherent risks and the swift
alterations in associated areas such as valuation of inventory, stiff competition in the market and
the shortage associated to the capital (Eilifsen et al. 2013).
Inherent risk Reason for risk to be inherent Risk of material misstatement
Incorrect interpretation
resulting from pressure of
management and stakeholders.
As per the given case, it can be
ascertained that the various types
of the transactions has been
particularly based on the
management of the DIPL
corporation. Although it can be
seen that the direct leads for the
Moreover, some of the inherent
risks attributable to DIPL also
resulted from improper recording
of cash receipts by the financial
professionals of organization. A
proper sequence is required to be
followed by the staff members

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inconsistencies can be ineffectual
for the planning of the marketing
and the sales activities. In
addition to this, the various types
of the financial declarations will
be able to accomplish the
preferred profit level and
revenues generated from sales.
The failure of the management in
the firm has been further seen to
be based on the various types of
consideration related to the
specific requirements and
consequent adjustment of the
functionalities in the corporation.
It can be concluded that the
business organization has
experienced several failures due
to the different types of the micro
and the macroeconomic facets,
which may help in the existence
of the economic, social and the
political factors. The sales figure
has subsequently reflected the
sales figure and the diverse
nature of the inherent risks
and accountants of organization
for recording of the accounts
receivable. It is also essential on
their parts to have proper
maintenance of accounts
receivable ledger. There are
complexities involved in the
recoding and maintaining the
accounts and therefore, the bank
reconciliation statements of DIPL
should be properly recorded.
There can be diverse risks to
DIPL resulting from improper
registration of revenue generated
from e book and recording of the
accounts concerning reprinting of
books (Kumar and Sharma
2015). Furthermore, the valuation
process involves in the balancing
the inventories was also not
proper.

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(Louwers et al. 2015).
Succession of CEO procedure Another inherent risk faced by
DIPL is the procedure that is
involved in succession of CEO as
it is difficult and very complex.
Risks are also associated with the
quality of procedures involved in
succeeding CEO and the
procedures of succeeding CEO.
Some of the facets that would
leave the company at inherent
risks are delaying the process of
succession, does not complying
with the strategy while initiating
the process along with departing
some of the candidates that
would lead to some risks
(Malyshkin 2013).
The different types of the
workers of the DIPL have
escalated the overall risks
inherent with it. Because of the
lack of the proficiency of the
employees the inherent risk of
the corporations has been also
increased to a subsequent level.
This has been mainly observed
competency level of the members
of the staff and the business
concerns. It has been further
determined that the non-
proficient workforces may also
make enhancements in the
inherent risks who are bound to
make mistakes for the errors in
the exclusion and the misstated
pecuniary announcements
(Beasley 2015).

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After the evaluation of the given case study, it was ascertained that some
of the issues are also involved in the implementation of the novel IT system. DIPL suffered
shortage of employees and several issues were faced while the execution of process. Testing of
the system, its installation and reconciliation was not done with the required number of staffs.
Some of the transactions of organization were not properly apportioned that was ascertained
during the process of initial testing. Therefore, there was some omissions of the particular
financial declarations and some of the material misstatements resulting from the inappropriate
recording of the transactions and thereby leading to the leading to some sort of inherent risks.
Answer to Question 3:
Explanation and identification of two fraud risks arising from fraudulent financial
reporting:
Fraud risks are attributable to organization from various facets such as employees
workloads, meeting the needs of stakeholders particularly shareholders. An organization can face
high level of fraud risks because of management pressure to attain specific level of performance
for meeting the needs of investors. In order to prevent the generation of guarantees, employees
have strong pressure from specific financial results.
Types of fraud risks Impact of identified risks in conducting audit
fraudulent financial reporting There can be risk that arise from risk of fraudulent
financial reporting. Outside financiers or investors
pressurize the organization for declaring the
particular financial results and from management to
meet specific financial goals. The credit rating
agencies also requires organization to maintain

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particular level of ratio in order to enable them
granting the loan or debt amount (Davidson et al.
2013). In all these events, high amount of fraud
risks can arise in organization when the employees
are not able to maintain the required financial
balance. It can be observed from the case study that
the revenue of DIPL has increased over the year
from 2013 to 2015. Moreover, net profit and gross
profit also witnessed from the case study. There has
also been escalation in the total value of assets and
liabilities.
DIPL has also obtained loan amount of
7.5million from BDO finance and the acquisition of
loan amount comes with certain types of
agreement. This type of agreement might be related
to the maintenance of solvency ratio at the
particular level. Debt ratio of DIPL should be
maintained within the value one and current ratio
should be around `1.5. It is indicative of the fact
that this particular type of financial requirement by
creditors and credit agencies would pressurize the
organization to maintain certain types of financial
agreement for acquiring the required amount of
loans. Organization might be involved in improper
projections of the financial information’s and this

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would results from fraudulent activities (Davidson
et al. 2013).
Workers getting engaged in fraud activities Another fraud risks that can arise in DIPL is
engagement of workers in the fraudulent activities
resulting from their dissatisfaction. It has been
ascertained from the case study that acquisition of
novel accounting system has put huge pressure on
employees as they have lack of knowledge
concerning some technicalities and they are
required to work beyond their working hours.
Fraud might arise from the issues faced by workers
during the process of installation of the system.
This would results from material misstatements as
the reconciliation of the accounts would also be
done in improper way. Certain transactions at the
end of year was not properly allocated resulting
from the inappropriate execution and handling of
the new accounting system (Duncan and
Whittington 2014).

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Impact of fraud risks on audit plan:
The process of valuation of raw material inventories of DIPL was not appropriate and this
was investigated because of high average costs. It is required by auditors to monitor different
activities at different times during the installation of the novel accounting system. Evaluation of
the financial statements and monitoring of the control mechanism of DIPL from different time
would help in detecting the risks that is associated with the financial reporting (Hayes et al.
2014).