Comprehensive Audit Report: Double Ink Printers Limited Case Study

This report presents a comprehensive financial audit of Double Ink Printers Limited (DIPL), analyzing its financial performance from 2013 to 2015. The audit includes a detailed ratio analysis, focusing on profitability, solvency, and liquidity ratios. The analysis reveals trends such as declining gross profit margins, increasing debt levels, and changes in liquidity. The report identifies inherent risks associated with DIPL, including potential misstatements in financial reports and risks related to information technology. Key risk factors are identified, such as meeting debt obligations and the impact of poor work allocation and inventory management. The report concludes with recommendations for the audit process, emphasizing the importance of verifying current asset and liability figures and inventory levels. The report references various academic sources to support its findings.

Running head: AUDIT
Audit
Student Name
University Name

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Question 1:
The analytical process that consists with the financial reports of Double Ink Printers Limited
(DIPL) has been a motivational factor for bringing out their given audit plan. The given plan
needs to be considered as a key parameter while preparing their audit procedure. It can be also
inferred that with the assist of different analytical methods, it can be inferred that different
financial experts and users interpret and use data for bringing out various decisions which would
be considered as beneficial for the organization (Bunker 2015).
Case study Explanation
The following table interprets the financial ratios according to the given case study.

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Profitability Ratio
Double Ink Printers Limited
2013 2014 2015
Gross Profit 6004500 6079500 6604500
Net sales 34212000 37699500 43459500
Gross Profit 17.55085935 16.1262086 15.1969075
Double Ink Printers Limited
2013 2014 2015

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Net Income 2359190 2291362 2972183
Net Sales 34212000 37699500 43459500
Net Profit 6.895796796 6.0779639 6.83897192
Double Ink Printers Limited
2013 2014 2015
Net Income 2359190 2291362 2972183
Total Assets 12930000 15903900 26147991
Return on assets 18.24586234 14.4075478 11.3667738
Double Ink Printers Limited
2013 2014 2015
Net Income 2359190 2291362 2972183
Shareholder
Equity
9150000 10783650 12250491
Return on
Equity
25.78349727 21.2484827 24.2617459

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Table 1: Ratio analysis of DIPL for the last 3 years (2013-2015)
(Source: Created by Author)
From the above table, it can be inferred that the solvency ratio of the organization has
increased in 2015 in comparison with the last two years. This further reflects that DIPL is using a
lot of debt in their operations to generate profit. However, the company needs to control the
burden of debt in order to avoid bankruptcy.
It can be also inferred that the gross profit ratio have declined during the past three ratios
from 17.55 percent to 15.19 percent. On the contrary, it can be also inferred that net profit ratio
has increased from 6.077 to 6.83 in the year 2015. In addition to this, return on equity increased
from 21.28 percent to 24.68 percent.
In terms of liquidity ratios, it can also be inferred that the current ratio of DIPL has increased
considerably during the last 3 years. This further reflects that the organization is effectively
using their working capital cycle during the past 1 year in comparison with the last few years.

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On the contrary, it is reflected that the quick ratio of the organization has declined in 2015 than
2014, from 0.94 to 0.84. This infers that the liquid assets remain almost the same during the last
few years.
Answer to Part B: Impact of the above analytical process on audit
The above analysis has a considerable amount of impact on the given auditing procedure
of DIPL. It has been observed that the organization may face certain amount of risks based on
the findings of the ratio analysis (Christopher 2015). Firstly, it has been observed that the
profitability of DIPL remained stagnant for a longer period. This further reflects that the
profitability may start falling in the coming years, which can be considered as a huge risk for the
organization. In addition to this, the debt equity ratio is on the higher side, which reflects there
are huge chances for the firm to become insolvent. Apart from this, the efficiency of the firm has
also declined, which reflects the firm is failing to manage their current assets (Junior, Best and
Cotter 2014)
Question 2: Inherit risks identified for the firm DIPL
Several inherit risks have been identified for the firm DIPL, which can be further evaluated with
the help of the following table:-
Double Ink Printers Limited
Types of Risk Financial reports - Material misstatement
Risks related to finance and operations-
Financial risks are those risks when the given
organization is not able to pay off the risks in
There are chances where the organization
DIPL may manipulate their financial
statements in order to hide their true and fair

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a timely manner and have huge chances to
become insolvent (Junior, Best and Cotter
2014)
view from their respective stakeholders. It has
been seen that the liquidity ratio and solvency
ratio of the firm is not on the high side,
therefore, the management of the firm may
not reflect true figures of current assets, debt
and equity in their financial statements. The
value of equity may have been increased by
giving inflated figures of retained earnings.
Risks related to information technology- In
modern business times, the process of
information technology have developed
vastly. Most of the organizations have
adopted new forms of technology and those
who failed to adopt are struggling with the
risk of their sustainability. Therefore, the risk
of information technology prevails in every
organization (Knechel and Salterio 2016)
DIPL failed to adopt new forms of
accounting system and thus they face the risk
of sustainability. They failed to follow
periodical accounting concepts and there is no
proper recording of financial transactions.
Due to this reason, the financial position of
the firm was not present on an accurate basis.
Table 1: Inherit risks of the organization
Question 3:
Part A:-Two Key risk factors identification in case of wrong financial reporting
Meeting debt obligations- It is of great essence for DIPL to meet all their debt obligations in a
timely manner and thus meeting the needs and requirements of their stakeholders. The
organization took a loan amounting to 7.5 million from BDO finance limited, which further had

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an impact on their debt-equity ratio. According to industry standards, current ratio needs to be
2:1 and debt equity ratio needs to be less than 1. There are huge possibilities that figures of
current assets and retained earnings have been inflated in order to maintain the above two
financial ratios.
Poor environment and allocation of work and inventory- It has been seen that there was no
proper job description in DIPL and allocation of work was poor. Due to this reason, there are
possibilities that total amount of inventories and existing stock can be inflated as there was no
proper documentation system (Moroney et al. 2014)
Part B: Assistance in conduction of Audit
Effect of debt obligations in the given audit plan- While conducting audit, it is important to
analyze whether the amounts of current assets and debt are inflated or not. In addition to this, it is
of utmost importance to balance the figures of current assets and current liabilities.
Effect of allocation of work and inventory on audit- While conducting audit, it is important to
analyze the total amount of inventory on timely basis. In addition to this, order quantities must be
matched with the total amount of order received, in order to minimize the risk of manipulation
for DIPL (Louwers et al. 2015).