University Finance: Audit, Assurance, and Compliance Report for DIPL

This report provides a detailed audit, assurance, and compliance analysis of DIPL, a company facing various financial challenges. The report begins by examining the role of analytical methods, particularly ratio analysis, in audit planning and their impact on assessing DIPL's financial information. It then identifies and assesses different types of risks, including inherent risks stemming from management issues, staffing problems, and CEO succession. The report delves into fraud risks and financial reporting risks, highlighting potential misstatements. Furthermore, it explores the implications of specific financial metrics, such as profit margins, solvency ratios, and current ratios, to provide a comprehensive understanding of DIPL's financial health. Finally, the report discusses the risks associated with DIPL's raw material valuation methods and their impact on the company's financial reporting. The analysis underscores the importance of effective financial management and risk mitigation strategies for DIPL to ensure its long-term financial stability.

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

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Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................5
Answer to Question 3:.....................................................................................................................6
Answer to Part A:........................................................................................................................6
Answer to Part B:.......................................................................................................................10
References:....................................................................................................................................11

2AUDIT, ASSURANCE AND COMPLIANCE
Answer to Question 1:
At the time of preparing the plan of audit in the context of DIPL, the analytical method
associated with financial information offers considerable support. On the contrary, audit plan
helps in giving the required directions and instructions to the auditors while carrying out the
operations of audit. In a precise manner, the plan of audit provides the auditors with an
opportunity in maintaining the cost of audit to a specific degree for curbing any sort of confusion
with the clients (Chou 2015). The analytical method related to the financial information of the
organisation denotes the method of transferring financial information from various financial
organisational announcements.
The method of evaluating financial information of the organisations could be conducted
through specific mechanisms. This analytical method helps in assessing the financial
information, which would enable the financial analysts and accountants for making certain
financial and accounting decisions. The analytical approach is common size that enables in the
method of dissecting the financial announcements of the firm from pertinent reference points.
The fundamental advantage is that it lends support to differentiate the financial statements from
specific timelines (Cohen and Simnett 2014).
With the help of financial reports, the financial analysts and accountants could utilise
different lines of items along with the checking the preparation base for the organisations. For
instance, the method of registration of different financial and accounting items in financial
statements like overall liabilities, owner’s equity and assets could be adjudged along with
investigation of detour from the regular position.

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The major analytical method of financial information is benchmarking and it is possible
to use this method for dissecting the audit plan of the organisation. In addition, this method of
benchmarking helps in detecting the variances in the financial statements of the organisations
and the actual reasons behind the happening of such variances could be ascertained by evaluating
the actual causes of these variances. Besides the process of benchmarking, ratio analysis is
adjudged as a primary analytical method pertaining to the financial information of the firms.
Thus, ratio analysis is of utmost importance for differentiating the financial statements of two or
more organisations for preparing the plan of audit (Duncan and Whittington 2014).
Explanation:
The analytical methods of the organisations in assessing the financial information could
result in considerable effect on the creation of the process of audit planning and this is crucial to
transfer the financial information among the different departments of the firm. The below-
mentioned ratios have been taken into account for meeting the purpose:
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
According to the above table, the current ratio of DIPL for the years 2013, 2014 and 2015
have been obtained as 1.42, 1.46 and 1.50 respectively. Another instance has been depicted in the
form of profit margin, which has been 0.068, 0.60 and 0.06 in the years 2013, 2014 and 2015
respectively. This evaluation of profit margin helps in depicting the amount of net profit gained

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in contrast to the net revenues of DIPL. Moreover, this evaluation of profitability enables the
financial experts and accountants to gain an understanding of the overall organisational
expenses. Besides this, it has enabled the accountants and financial experts to obtain an overview
of the efficiency of the organisational budget coupled with the need for diversification of the
organisation (Gist et al. 2015). Thus, it could be evaluated that the evaluation of ratios is a
primary tool for the auditors of DIPL.
The desirable and undesirable modifications associated with the financial performance
and ratios of DIPL enable the auditors to gain an insight about the present financial condition of
the organisation. In this context, the instance of solvency evaluation of DIPL has been taken into
account. It has been found that the solvency ratio of DIPL has been 0.62, 0.44 and 0.21 in the
years 2013, 2014 and 2015 respectively. Such evaluation is valuable for determining the
favourable or unfavourable movement of the organisational performance in the upcoming years.
The contrast of ratios has its importance in ascertaining the cash flows of the organisations and
its adequacy in determining its short-term as well as long-term obligations.
In a better fashion, it could be stated that the contrast and evaluation of financial
performance and ratios provides the financial analysts and accountants with an opportunity in
ascertaining the current financial condition of the organisation over three-year period. Thus, with
the help of this analysis, they could ascertain the feasibility of the existing financial position of
the organisation. If the financial position of DIPL is not feasible, the management of the firm is
required to adopt corrective actions for reinstating its financial position. Due to all such causes,
the analytical method associated with the procedure of financial information has considerable
significance (Glover,S.M., Prawitt and Messier 2016).

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Answer to Question 2:
Certain factors of risk could be accumulated from the overall business operations of
DIPL. In accordance with the provided case, it could be observed that the management or
accounts of the organisation have failed to make entry of several business transactions of the
organisation. This procedure has direct association with the inconsistencies associated with
planning of different sales and marketing tasks of the organisation. Based on the assessment of
the different financial statements and reports of the organisation, it could be observed that the
organisation has failed to accomplish the targeted level of profit from net revenues.
The fundamental reasons include the inappropriateness and inconsistency of the
management of the organisation in its business operations. Therefore, it could be stated that the
organisation has been unable in measuring the influence of certain macro and micro-economic
factors on the overall business functioning of the organisation such as political, social and
economic factors. Hence, the declining revenue and profit level of the organisation has resulted
in inherent risk for the organisation (Houghton and Campbell 2013).
Along with this, the staffs of DIPL have increased rapidly, which has resulted in
increased level of inherent risk. Such enhanced level of risk is due to the lack in professionalism
and experienced proficiency of the staffs. As commented by Ihendinihu and Robert (2014), the
performance of the staffs is a crucial factor for assuring the future growth of an organisation.
Thus, the lack of experience and ineffectiveness of the workforce could lead to serious work
mistakes resulting in increase in inherent risk. Based on the provided case of DIPL, the issues
could be observed in the method of succession of CEO of the firm. Due to this, this procedure
results in rise in inherent risks in the context of DIPL. The primary inherent risks could be
viewed in effective procedure of choosing the CEO succession of the organisation. Along with

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this, it could be viewed that the organisation has shortage of employees for managing its entire
business operations. This cause results in enhanced level of inherent risk in the business
operations of the organisation. Hence, in accordance with the above evaluation, these are the
primary causes of the rise in inherent risks in DIPL (Kend, Houghton and Jubb 2014).
Explanation:
It could be observed that the employees of DIPL have huge amount of workload in
carrying out their day-to-day tasks. Such additional burden results in accurate records of the
organisation and it results in several issues related to cash flow, ineffective operating profit,
solvency position and inadequate liquidity position of the organisation. Besides this, the error
risk could be viewed in the financial reports because of lack of effective evaluation. Therefore, it
is of utmost significance for the management of DIPL in playing a significant role to deal with
such issues. These primary issues include lack of accountability and integrity and due to this
reason, they have been suffering from the fear of losing reputation in the business community.
The greater structure of incentive for management generates additional pressure on management
and it results in material misstatement in financial reports and statements (Kilgore 2014).
Answer to Question 3:
Answer to Part A:
In business organisations, fraud risks are considered as one of the primary risks for the
same. Because of the occurrence of fraud risks, the business organisations often experience
heavy losses in its overall asset base (Knechel and Salterio 2016). Most of the time in
organisations, primary dissatisfaction could be viewed between the workforce and such
dissatisfaction often leads them to engage in various types of frauds in organisations. Another

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fundamental reason of fraud is the expectations related to the various investors of the
organisation. As the management of an organisation is often involved in promising a particular
level of financial performance, the chance of risk level is increased (Peters and Romi 2014).
Types of risk Identification
Fraud risk For the business operations of DIPL, the
primary risk that could arise from business
operations comprises of the involvement of the
workers in various kinds of fraudulent
activities. This could occur due to the
dissatisfaction level of the staffs. Based on the
provided case of DIPL, it could be observed
that there is enormous pressure from the board
of DIPL in order to adopt an effective system
of accounting. The adoption of this system
develops heavy pressure on the staffs of the
organisation and this leads to increased fraud
risk (Sanderson 2013). Hence, it could be
remarked that for coping up with the
reconciliation pressure, the staffs might adopt
the path of fraud and they might handle the
overall process in an incorrect manner, which
would result in material misstatements. From
this specific case study, it could be viewed that

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the procedure of inappropriate handling of the
implementation of new information technology
results in incorrect recording of few accounting
and financial transactions at the end of a
period. This overall procedure might result in
loss of material misstatements and financial
information (Schmidt, Wood and Grabski
2016).
Financial reporting method Except the fraud risk, another primary risk
confronting the business operations of DIPL is
the financial reporting method. Greater risk of
inappropriate financial declarations could be
observed in situations of additional financial
expectations from different stakeholders for
declaring the financial announcements. This is
applicable in case of the announcement on the
part of the management of the organisation in
meeting certain target of performance and
goals in order to acquire certain debts (Seow,
Lim and Suwardy 2014).
The financial reports of DIPL state that the
sales of the organisation have increased over
the years. In addition, there is rise in gross

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income and net income of the organisation.
The issue has been witnessed in case of current
assets and overall asset base of the
organisation. According to the case study, it
has been observed that the organisation has
accumulated a loan of $7.5 million from BDO
Finance in 2015. In addition, according to the
agreement of loan, DIPL needs to hold a
current ratio of 1.5 and debt-to-equity ratio of
below 1. The requirement of this particular
need might be to develop pressure on the
organisation in repaying the loan according to
the agreed timeline. Such requirements could
result in fraudulent activities, since the
management of the organisation could
manipulate the financial statements for false
depiction of the financial condition of the
organisation. If the desired benchmark is not
maintained, DIPL might lose its eligibility in
acquiring loan from BDO Finance (Vasarhelyi
et al. 2014).

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Answer to Part B:
In accordance with the provided case, it could be witnessed that the process of valuation
associated with the raw materials of the organisation based on average cost is ineffective and
unsuitable. This is because the average cost is smaller than the present paper cost. The primary
risk in the tracking of fraudulent activities of the staffs to implement new system of information
technology could be detected through continual review of the tasks in various job phrases.
Besides this risk, the risk pertaining to financial reporting could be detected through assessment
of the different financial reports and statements of the organisations on the part of the
accountants and financial analysts by using control and analytical tools. This monitoring method
is required to be made in a timely fashion (William Jr, Glover and Prawitt 2016).

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References:
Chou, D.C., 2015. Cloud computing risk and audit issues. Computer Standards & Interfaces, 42,
pp.137-142.
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.
Duncan, B. and Whittington, M., 2014, September. Compliance with standards, assurance and
audit: Does this equal security?. In Proceedings of the 7th International Conference on Security
of Information and Networks (p. 77). ACM.
Gist, W.E., Anderson, U.L., Janvrin, D.J. and Pitman, M.K., 2015. Comments by the Auditing
Standards Committee of the Auditing Section of the American Accounting Association on the
IESBA ED Release (August 14, 2014), Proposed Changes to Certain Provisions of the Code
Addressing the Long Association of Personnel with an Audit or Assurance Client: Participating
Committee Members. Current Issues in Auditing, 9(1), pp.C18-C22.
Glover, S.M., Prawitt, D.F. and Messier, W.F., 2016. Auditing and Assurance Services: A
Systematic Approach 10th.
Houghton, K. and Campbell, T., 2013. Ethics and auditing (p. 354). ANU Press.
Ihendinihu, J.U. and Robert, S.N., 2014. Role of Audit Education in Minimizing Audit
Expectation Gap (AEG) in Nigeria. International Journal of Business and Management, 9(2),
p.203.