Audit and Assurance Report: Financial Analysis of DIPL's Performance

This report provides a detailed analysis of audit and assurance practices, focusing on the financial statements of DIPL. It begins by exploring the analytical approach, including financial ratios, and their interpretation. The report then delves into the inherent risks within DIPL's business operations, considering factors such as employee inexperience, environmental aspects, material misstatements, and CEO succession issues. Furthermore, it identifies and classifies various fraud risks, examining how pressure on the workforce and management can lead to fraudulent activities. The report also addresses the appropriateness of inventory valuation methods and assesses the potential for financial reporting risks. The analysis includes a review of liquidity, profitability, and solvency ratios, along with an examination of DIPL's financial performance. The report highlights areas of concern, such as declining profit margins and current ratios, and suggests improvements to mitigate risks and enhance financial performance. The report references multiple academic sources to support the findings and recommendations.

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

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Question 1: Analytical Approach
The analytic approach to the economic declarations of the DIPL shows the method of the
dissemination of information from it. Analytic approach can be in the form of financial ratios.
With the help of analytic method of evaluation of financial announcements however,
several accountants as well as financial analysts can interpret the information for allowing the
arrival at crucial business decisions (Barr-Pulliam et al. 2017).
The case of the common sizing analytical way allows the assessment of the economic
announcements to a common reference point. This results in the possible contrast of the financial
statements in connection to the different timeframes or in relation to several entities. The
assessors can consider the several item lines shown in the economic report along with the
reporting method. For example, the way of registration of the items like assets, liabilities as well
as the owner’s equity in the economic reporting of the organisation along with the investigational
digression from the usual situation (Bayer and Cowell 2016). The method of benchmarking is
thought of as an analytic procedure and it should further be used for the audit plan assessment.
The variance of the actual fiscal declaration from the standard enables the recognition of the
deviation as well as helps in the evaluation of the reason of the recognised variance. Along with
this the analysis of the ratio could be adjudged as an effectual analytic method that can be used
for contrasting the financial declarations along with the audit plan assessment (Bepari and Mollik
2015).
Explanation:

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The outcomes of the given analytical method can be analysed with the help of ratio
analysis for the last 3 years of financial statements of DIPL:
The above table interprets about the liquidity, profitability and solvency status of the
firm. The above table reflects that the current ratio of DIPL has declined in the last year in
comparison with the last few years. This reflects that the company is not utilizing its working
capital cycle. In addition to this, the profit margin of the firm has also declined, which infers that
the company is not able to manage its direct and indirect expenses. On the other hand, it can be
inferred that solvency ratio of the firm is lower, which interprets that the firm is not exposed to
financial leverage risk. This is a good sign for the firm; however, it needs to increase its liquidity
and profitability position in order to meet its respective short-term debt obligations.
Answer to Question 2:
Several significant factors are innate in the auditing process, which constitutes the
incident of material misstatements in the economic declarations of a specific entity. It can
however be said that, several kinds of both systematic as well as unsystematic risks showing the
way in which the financial misstatements are there in the organisations’ financial

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announcements. Additionally the identified risks may be due to financial as well as non-financial
factors which can subsequently prevent a specific entity in reflecting a just view of the economic
announcements. Based on the information from Devos and Zackrisson (2015), the detected risks
may be associated with several risks of omission connected with risks of several unimaginable
errors of a specific bookkeeper. Hence it can be said that it is the business risk for the DIPL’s
business operations.
Apart from this, the employees at DIPL are inexperienced and do not possess the
requisite proficiency that has escalated the total inherent risk of the organisation. Additionally,
such a lack of experience can result in the committing of errors or mistakes, thereby increasing
the inherent risks. This is due to the fact that the employees constitute a significant segment of
the company and it is not feasible for the firm to ensure its business success as well as its growth
in the future without the effective contributions from the employees. The other significant factors
contributing towards the inherent risk can be categorised into several segments like the external
as well as the ecological or environmental aspects as well as the materialistic misstatements in
the previous time points as well as the false exercises. The environmental aspects directing the
method towards the inherent risk comprises rapid alternations where the matters could arise
connected to the valuation of inventory, intense competition in the market as well as the lack of
sufficient money. Apart from this, there is the chance of materialistic misstatements that can
direct the DIPL towards the inherent risk in the years to come.
The analytical process of the current case of the DIPL shows the fact that the issues as
well as the complexities related to the CEO succession constitutes the inherent risks also. In core
it can be said that the succession of CEO is different as the candidates are individuals (Graham
2015). Hence, the commencement of the procedure, without complying to the strategy, delayed

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initiation of the process, ineffective connection of the CEO as well as staff attrition may result in
an inherent risk.
The analysis of the case provided implies that the implementation procedure of the IT
system has caused certain issues. DIPL has a shortage of employees for managing the
implementation process as well as installation along with the reconciliation conduction as well as
the testing which should be primarily before the new arrangement at the period end.
Additionally, the initial assessment disclosed that numerous transactions carried out were
recorded in a suitable manner. Thus the results in material misstatements because of the inherent
factors that is an error of deletion in a specific economic announcement.
The DIPL staff members need to follow a suitable sequence for registering the receivable
accounts as well as ledgers connected to the accounts receivable. Along with this, the
reconciliation of the bank, is required to be properly recorded as well (Milonas et al. 2016).
Further, it can be said that the revenue registration found from the e-book and considering the
textbook reprinting in the future could possibly result in several inherent risks due to complexity
associated with the procedure. Thus the inventory valuation applicable to the raw materials at an
average cost is not at all suitable as the average cost is not apt, as the average cost is much below
the existing paper cost.
The discerned inherent risks can be adjudged as the susceptibility of a particular assertion
in connection to the materialistic misstatements and are shown briefly as follows:
Increasing burden on the employees as well as the management:

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It is because of the increasing burden of work on the DIPL staff, that it has resulted in the
inaccurate bookkeeping. As a result, several attributes have occurred that include the propensity
in encountering the cash flow, operating results as well as the poor liquidity.
Risk of errors due to incorrect representation:
Intricacy as well as dependability is inherent because of the risk related with the errors as
well wrong interpretation in a simultaneous manner.
Overall management integrity:
According to the case study, the DIPL’s management possess the lack of integrity it is
desired that it will be ready for any possible loss in the business community.
Abnormal pressure on the management:
Occasionally it so happens that there exist incentives for the management. As a result
financial announcements have several misstatements (Nalewaik and Mills 2016).
Nature of the business entity:
DIPL contributes to the major growth in economic as well as circumstances of
competitive nature. Additionally, these aspects might have an influence on the underlying risks
of the business entities for the audit planning assessment in a suitable fashion.

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Answer to question 3:
Answer to part A:
According to Saad (2014), the risks of fraud, could probably result in severe losses of the
assets because of several fraudulent activities. The motivational lack in the workforce due to the
additional pressure of work on the staff could probably influence them to get involved in several
fraudulent activities. With this, the expectations form several groups of investors in the reporting
of specific financial results or particularly in case of the management in achieving the suitable
targets of performance had a chance of resulting in significantly increased fraud risks. Further,
strong amount of pressure is exerted on the management of the corporation in order to announce
specific economic results in a bid to avert the generation of the guarantees.
The main types of risks identified in the context of DIPL’s business operations are briefly
classified as follows:
Types of risk Identification
Engagement of the total workforce in fraudulent
activities
The case study provided conforming to the
operations of the DIPL states that the board has put
immense pressure on the company in acquiring an
innovative system of accounting. Such additional
staff pressure in performing the new information
installation process for accounting may result in
fraud. This implies that the staff may be involved in
fraudulent activities for managing the behaviours as
well as the reconciliation process in an effective
fashion, and also the materialistic misstatements.

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The provide case shows, that the ineffective
management of the process execution connected to
the implementation of the information technology
for the accounting results system in incorrect
allotment of several transactions at the period end.
This results in severe loss due to the material
misstatements as well as fraudulent risks (DeFond
and Zhang 2014).
Way pertaining to economic reporting Another risk of fraud that may confront the DIPL’s
business operations may take the risk related to the
financial reporting fraud into account. At the time
of certain situations, it has been found that there is
additional expectation from the management or
from the external financers. This form of
expectation is to achieve the particular targets of
the performance of different goals to qualify for
obtaining debt. There is enhanced risk of incorrect
declarations of a financial nature. Based on the
DIPL’s balance sheet statement the net revenue of
the organisation has increased. Gross and net
income has also increased. Current assets have also
escalated. Due to the failure of the organisation in
maintaining the standard yardsticks, the
organisation became ineligible in acquiring funds.

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Answer to Part B:
Depending on the provided case study, it can be stated that the evaluation method
associated with the inventory valuation of several raw materials at specific average costs is not
appropriate. This is because the existing cost of paper is higher considerably that the average
cost. The risk connected with the financial reporting could have been recognised by the
dissection of the financial statements on part of the assessors. Benchmarking is thought of as an
analytic process and could be utilised for the audit plan assessment. The real financial
declaration from the yardstick helps in the recognising of the deviation and helps in the
evaluation of the recognised variance.

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