Auditing and Assurance Report: DIPL Financial Performance Analysis

This report provides an in-depth auditing and assurance analysis of DIPL's financial performance. It begins by explaining how analytical procedures influence audit planning, emphasizing the importance of ratio analysis and benchmarking to assess financial health and identify trends. The report then explores the risks affecting DIPL, including those related to record-keeping omissions, ineffective management, and employee inexperience, and their potential impact on material misstatements in financial reports. Furthermore, it identifies and explains two key fraud risk factors: potential fraudulent activities by employees and the manipulation of the financial reporting process due to loan requirements. The report concludes by depicting how these risk factors would affect the audit process, particularly concerning the valuation of raw materials and the implementation of new systems. The analysis draws upon various academic sources to support its findings and recommendations.

Running head: AUDITING & ASSURANCE
Auditing & Assurance
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Table of Contents
Question 1: Explaining how results influence planning results of the audit of year ending 30
June 2015...................................................................................................................................2
Question 2: Explaining the risk and how it might affect the material misstatement in the
financial report...........................................................................................................................4
Question 3a: Identifying and explaining the two key fraud risk factors, which might increase
fraudulent financial reporting.....................................................................................................5
Question 3b: Depicting how the risk actors would affect the audit...........................................7
Reference and Bibliography:......................................................................................................8

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Question 1: Explaining how results influence planning results of the audit of year
ending 30 June 2015
Analytical process is considered to be one of the adequate information providing
systems, which allows the company to develop adequate audit plan. The use of the audit plan
mainly allows the auditor’s relevant steps that need to be conducted complete the audit
operation. Arens, Elder and Beasley (2014) mentioned that with the help of audit plan,
auditors are able to control and maintain the overall audit cost, which is needed to complete
the overall audit procedures. However, DIPL need an adequate analytical approach for
reviewing the overall financial information, which has been declared by the organisation. The
analytical approach only allows the financial analyst and auditors to understand overall
performance of the organisation and make relevant accounting and financial decisions.
Furthermore, with the help of common size analytical approach, individuals are able to
evaluate the financial declaration that has been conducted by the organisation. In this context,
Arens et al. (2016) stated that the evaluation and comparison of different financial reports
allows the financial analyst to understand the trend of the organisation.
There are different ways in which financial analyst and Accountants are able to
evaluate the financial report of an organisation. The major analytical process that could be
used by the analyst is the Benchmarking. This method directly allows the analyst to compare
the financial condition of an organisation to its peers. Relevant variance could be identified
with the help of benchmarking process, which could directly pinpointing causes of the
variance and performance between the company and its competitors. Furthermore, the use of
ratios also allows the financial analyst to evaluate the financial information provided by an
organisation. The evaluation conducted by the ratios allows the organisation to compare the
performance of the organisation with not only its competitors but also with the previous fiscal

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year performance. According to Becker, Stead and Stead (2016), ratios are considered to be
one of the measures, which are used by auditors and analyst to evaluate performance of the
organisation in different timelines.
Particulars 2013 2014 2015
Current assets 5,385,938 7,509,150 9,600,929
Current liabilities 3,780,000 5,120,250 6,397,500
Revenue 34,212,000 37,699,500 43,459,500
Net profit 2,359,190 2,291,362 2,972,183
Depreciation 249,375 274,312 472,688
Total liabilities 3,780,000 5,120,250 13,897,500
Current ratio 1.42 1.47 1.50
Profit margin 6.90% 6.08% 6.84%
Solvency ratio 69.01% 50.11% 24.79%
The above table many helps in identifying the relevant ratios such as current ratio,
profit margin, and solvency ratio for DIPL. Relevant improvement in the current ratio is seen,
whereas decline is seen in both profit margin and solvency ratio from 2013 to 2015 (Cohen
and Simnett 2014). The analytical process mainly identifies the relevant expenses, income,
and effectiveness of the budget that is used by the organisation. Ratios are one of the
adequate analytical tools that could be used by the auditors in conducting analysis of DIPL.
Furthermore, the use of ratios mainly allows the organisation to understand the actual
financial performance of the organisation. The auditor's would eventually detect the actual
financial health of the organisation and its trend with the help of financial ratio. Use of ratios
also allows the analysis to understand the desirable and undesirable condition what the

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company's current financial position. However, the current case of DIPL is relatively
undesirable, as the organisations performance has rapidly declined over the period of three
years. The performance of the organisations have deteriorated over the period of three fiscal
years, which directly imposes the overall corrective measures that needs to be conducted by
the organisation for increasing its future performance (Cohen and Simnett 2015). Thus, it
could be evaluated that the above mentioned reasons have relevant significance, which forces
the organisation to use analytical process on its financial information.
Question 2: Explaining the risk and how it might affect the material misstatement in the
financial report
There are two types of inheritance that could be identified from the operations of
DIPL, which is hindering the operational capability of the organisation. However there are
certain risk that could be evaluated first to understand the risk factors that is hampering the
operations of the DIPL. Evaluation of a case study mainly helps in understanding that the
accounts department of the organisation have conducted different types of omission in
Record Keeping. The omissions of the transaction mainly increase the inconsistency in the
planning and marketing phase for the organisation. Moreover, it is seen that the organisation
failed to achieve the targeted revenue and profit level, which was set by the analyst. The other
risk comprises of the inconsistency and ineffectiveness of the company's management, which
is hampering the overall operations of the organisation (Earley et al. 2016). Moreover,
management was not able to comprehend the risk identified from micro and macroeconomic
factors such as economic, political, and social. Therefore, declining profit margin and
revenue mainly increased the inheritance risk of the organisation.
The second inheritance risk mainly comprises of the employees currently working in
DIPL, who are not having the adequate experience and proficiency level to increase

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productivity of the organisation. The evaluation of the study mainly states the inexperienced
employees working in DIPL, which could increase mistakes that might directly raise the
inheritance risk. Another way of finding the inheritance risk is by evaluating succession of
the so, which was conducted by an ineffective process (Eilifsen et al. 2013). This has directly
influenced inheritance risk of the organisation, which is affecting its operation and
productivity. Furthermore, the organisation does not have adequate workforce to handle the
business operations, which is also the reason why accountant are not able to record all the
transactions and are making relevant omission. The second inheritance risk that could be
identified from the case study is mainly the business operations of the organisation.
From the evaluation of the case study it is seen that poor bookkeeping is been
conducted due to excessive workloads imposed by the organisation. Furthermore, there is a
lack of adequate interpretation by the management, which increases the inheritance risk of the
organisation. Both the identified inheritance could directly increase the material misstatement
in the annual report, which in turn could reduce viability of the financial statement (Junior,
Best and Cotter 2014).
Question 3a: Identifying and explaining the two key fraud risk factors, which might
increase fraudulent financial reporting
Risk identified from the case Evaluating the risk
Fraud risk The first risk that could be identified from the Case study of
DIPL is mainly the fraudulent Paris which might be
conducted by employees of the organisation. the employees
of the organisation is relatively that satisfied with the
current operational capability, which might increase the
fraudulent activities. The case study mainly states the

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pressure that was given to the Accountants of the
organisation to use the new accounting system, which
would increase the pressure on the employees. Thus,
increasing pressure could eventually result in fraudulent
activities conducted by the accountant, which in turn might
increase material misstatement in the financial report.
Moreover, inherent risk of the organisation could directly
increase due to the mistakes conducted by accountant in
drafting the financial report. Evaluation of the succession
process of CEO could also help in identifying the
inheritance risk that is affecting operations of the
organisation. The management of DIPL is relatively lacking
integrity and accountability in conducting relevant
operations in your organisation, which is why the company
is losing reputation in the business community (Kinney
2015).
The financial reporting process The second major risk that could affect operation of the
organisation can be identified from its financial reporting
process. The overall financial statement process of the
organisation could be manipulated and portray adequate
risk. The analysis of the case study also states that DIPL
mainly needs to maintain adequate current ratio of 1.5 and
debt ratio below 1, as stated in its loan requirements. This
restriction in the current ratio and debt ratio could
eventually force the management to manipulate the overall

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financial report to support its loan obligation. If adequate
measures of current ratio and debt ratio are not maintained
by the organisation then it would not be able to obtain the
loans provided from BDO Finance, which could directly
affect its operational capability. This need of the fixed
current ratio could eventually increase fraudulent actions
and activities in DIPL, which might force them to
manipulate the financial report. Therefore, it could be
understood that relevant fraudulent activities might be
conducted in the organisation and portray material
misstatements in the financial report (Knechel and Salterio
2016).
Question 3b: Depicting how the risk actors would affect the audit
The risk from fraudulent activities conducted by staff can be identified from the case
study, where implementation of new system could eventually help in monitoring activities of
the employees. For the more there is a problem with the valuation of raw materials, which is
conducted on average cost method. The average cost method is relevantly not adequate, as
the actual cost is higher than the average cost, which does not allow the organisation to
determine the actual expenses conducted in purchasing the raw materials (Louwers et al.
2015). There is a relevant risk that can be seen in the financial reporting process, which needs
to be evaluated by the auditor during the audit procedure.

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Reference and Bibliography:
Arens, A., Elder, R. and Beasley, M., 2014. Auditing and assurance services-An integrated
approach; includes coverage of international standards and global auditing issues, in addition
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Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance
services. Pearson.
Becker, L.L., Stead, J.G. and Stead, W.E., 2016. Sustainability Assurance: A Strategic
Opportunity for CPA Firms. Management Accounting Quarterly, 17(3), p.29.
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.
Cohen, J.R. and Simnett, R., 2015. A forum on CSR and assurance services introduction.
Earley, C.E., Hooks, K.L., Joe, J.R., Polinski, P.W., Rezaee, Z., Roush, P.B., Sanderson,
K.A. and Wu, Y.J., 2016. The Auditing Standards Committee of the Auditing Section of the
American Accounting Association's Response to the International Auditing and Assurance
Standard's Board's Invitation to Comment: Enhancing Audit Quality in the Public
Interest. Current Issues in Auditing, 11(1), pp.C1-C25.
Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance
services. McGraw-Hill.
Junior, R.M., Best, P.J. and Cotter, J., 2014. Sustainability reporting and assurance: A
historical analysis on a world-wide phenomenon. Journal of Business Ethics, 120(1), pp.1-11.
Kinney Jr, W.R., 2015. GAAS 1963-2012: The Global Foundation of Independent Audits and
Research in Auditing.