Subject Title AUDITING ,ASSURANCE AND COMPLIANCE

Subject Code HI6026B

Lecturer Khokan Bepari

Assignment Title INDIVIDUAL ASSIGNMENT 1

Due Date Friday Week 6

Contact Details Student ID EGU8594

Student MAULIK

Name

Student e- EGU8594@my.holmes.edu.au

mail

address
Auditing and Assurance

INTRODUCTION

Analytical procedures are an important type of evidence in an audit. ASA 300

(ISA 300). Audit standards require the auditor to perform analytical

procedures in audit planning. Analytical procedures may be useful in

identifying the existence of unusual transactions or events, and the amounts,

reports. Ratios and trends that may affect audit planning. They include a

recommended comparison of expectations with values developed by

auditors. Evaluations to consist of financial information made by a study of

plausible relationships between financial and non-financial data. For

example, this year's accounts receivable balance can be compared with

previous year's balances, adjusted for any increase or decrease in sales and

other economic factors.

Financial Ratios of Double Ink Printers Ltd (DIPL)

Financial ratios are a valuable and easy to interpret figures found in

statements. The analysis of the report makes it possible to understand the

relation between the number of spreadsheets. It can help you answer key

questions such as whether the company is carrying too much debt or

inventory, whether customers pay according to terms, and whether the

operating costs are too high. When calculating financial ratios, a clear

indication of the strengths and weaknesses of the financial firm is clear.

Examining these proportions over time gives an idea of how effective the

business is being operated.

Here are the most critical ratios for Double Ink Printers Ltd (DIPL)

companies, but others can be calculated.

The financial ratio is a valuable statement and easy to interpret in the data.

The analysis of the report makes it possible to understand the relation

between the number of spreadsheets. This can help you answer key

questions such as whether the company pays too much debt or inventory,

that the customer is paying according to the terms and conditions and

whether the operating costs are too high. When calculating the financial ratio,

it clearly indicates the advantages and disadvantages of the financial

company. With the passage of time to examine these proportions, you can

understand the effectiveness of business operations.

This is the largest proportion of dual-ink printing company (DIPL), but others

can be calculated.

Liquidity
It measures the ability of a company to pay its debts to maturity. There are

two reasons for evaluating liquidity.

Current ratio- Determines how the company uses only current assets to

pay current liabilities. Also called working capital ratio. The general rule for

the current ratio is 2 to 1 (or 2: 1 or 2/1). Real quality and asset management

should also be considered for Dipl.

The formula is:

Total Current Assets

Total Current Liabilities

Year 2013 2014 2015

Current Ratio 1.424 1.466 1.500

Quick ratio - This ratio has declined in 2015 and is well below the usual

benchmark of 1. This is an indicator of short-term liquidity concerns for the

company. This is particularly worrying as it appears that accounts receivable

has increased during this period (deducted from the "receivables" ratio). It

would be useful to review the company's cash flow for more information on

its short-term liquidity.

The formula is:

Cash + Accounts Receivable

(+ any other quick assets)

Current Liabilities

year 2013 2014 2015

Quick ratio 0.83 0.9448 0.84725

2. safety

means that the company faces the risk of vulnerability - that is, the degree of

protection provided by corporate debt. Three relationships help evaluate

security:
Debt equity ratio - It quantifies the relationship between the owner and the

investment capital of the investor and the funds provided by the creditor. The

higher the proportion, the greater the risk of current or future creditors. The

higher the ratio, the higher the risk is high for a current or future creditor. This

relationship has increased over the three years, indicating the company's

greater dependence on equity. Since much of the investment in productive

assets occurred in previous years, it would be useful to evaluate what the

recent loans used to finance.

The formula is:

Total Liabilities (or Debt)

Net Worth (or Total Equity)

year 2013 2014 2015

Debt equity ratio 0.413 0.474 1.1344

Interest coverage ratio or time interest ratio - assess the company's

ability to meet interest payments. It also evaluates the possibility of assuming

more debts. The higher the proportion, the greater the ability of the company

to pay for interest or debt. this means that the company earns more than

enough money to pay its interest bonds with some additional earnings

remaining to make principal payments.

The formula is:

Earnings Before Interest & Taxes

Interest expense

year 2013 2014 2015

Time interest 40.9420 40.125 4.786

earn
3. Profitability measures the company's ability to generate a return on
resources.

Gross profit margin - Indicates how the company can generate a return on

gross profit. It addresses three areas: inventory control, price and production

efficiency. This indicates that the company can use a larger discount to

generate sales.

The formula is:

Gross Profit

Total Sales

year 2013 2014 2015

Gross profit ratio 0.212 0.1922 0.1792

Net profit margin - shows that the net result is calculated from the total

amount of each sale. This shows how the operating costs of the business. It
is also possible to emphasize whether the company has sufficient sales to

cover the minimum fixed costs and even the acceptable profits.

The formula is:

Net Profit

Total Sales

year 2013 2014 2015

Net profit ratio 0.0836 0.0724 0.0806

Return on Assets -Evaluates the effectiveness of the company by

using its assets to generate returns. It is prudent for a higher proportion to

be more favorable to investors, since it shows that the company manages its

assets more efficiently to produce higher returns. A positive ROA ratio also

indicates an upward trend in earnings.

Total assets

year 2013 2014 2015

Return on total assets 0.130 0.125 0.162

Return on Net Worth - Also known as Return on Investment (ROI). It

determines the rate of return on investment capital. Used to compare the

company's investment and other investment opportunities (such as stocks,

real estate, savings, etc.). There must not be a indirect relationship between

ROI and risk means there is direct relationship.

The formula is:

Net Profit

Net Worth

year 2013 2014 2015

Return on equity 1.0485 1.0183 1.320

4 Efficiency
 It assesses the extent to which the company manages

its assets. In addition to determining the value of the company's assets,:

Account Receivable turnover-indicates many times accounts receivable

are repaid throughout the accounting period.

decrease ratio, similarly, can also suggest some elements about a business,

such as the company may have poor collection process, poor credit policy

or not, or bad clients or clients with financial difficulties. Hypothetically, the

decline ratio may also mean that if the company improves its collection

process, it has a high amount of accounts receivable in the collection account

of its various debtors. In general, however, the decrease ratio means that

the company needs to re-evaluate its credit policy to ensure the timely

collection of credit for which the company is not interested

The formula is:

Total Net Sales

Average Accounts Receivable

year 2013 2014 2015

Receivable Turnover 1.1148 0.8096 0.687

Accounts Receivable Collection Period It shows how many days it takes

to collect all debtors. With respect to the income received (above), Fewer

days mean that the company get their income in very quick time.This

proportion has increased considerably over the three years. This may

indicate greater leniency in terms of credit to try to generate sales. This may

have a subsequent impact on the recoverability of accounts receivable.

The formula is:

365 Days

Accounts Receivable Turnover

year 2013 2014 2015

Receiveable tuyrnover in 365 days 327 days 451 days 531 days
The risks identified are primarily related to operating costs and inventory

costs. These costs affect the company's financial factors and may be

therefore involve risks. The negotiations defined in the scenario are in AUS

dollars and the import and export procedures, counting foreign currencies,

have a very significant monetary impact. The exchange rate change can be

considered as one of the main sources of financial losses and can lead to an

economic risk. (Selisteanu, Florea, & Buziernescu, 2015).

Question 2

Economic and financial risks are very effective in the company and can result

in significant losses for the company. The cost of transporting raw materials

and other equipment can also affect commercial costs. The cost of selling

the property will increase and affect the overall commercial economy. Thus,

problems can result in the addressing of audit risk. (Selisteanu, Florea, &

Buziernescu, 2015).
The inherent risk may be information about the importance of disclosure,

account balance or transaction-related information, personal or

misstatement of the set prior to considering any relevant controls (Weirich,

Pearson, & Churyk, 2014). The risk of control may be based on the risk of

misstatement that may occur on disclosure claims, account balances or

transactions, and may be important errors that may not be corrected,

promptly discovered or prevented in a personal or erroneous summary

Stated by internal control entity.

In the case of Dipl's procurement inventory, the company is likely to generate

slow cash flows and business risk associated with the liquidity of Dipl's

transactions.

Question 3

The treatment of revenue and capital expenditure business risk

The risk here would have been related to the Existing of the facility and the

ownership of the equipment as the cost of revenue has been given priority

rather than cost in the reporting activity. (Blay & Geiger, 2012). This can

cause confusion because the auditor cannot determine the exact processing

of the transactions performed by Dipl when purchasing his inventory without

proper documentation. (Blay & Geiger, 2012). This is because the company

operates on a large scale and that complex network-related businesses can

be fake in the financial statements. This is a challenge when deciding to

allocate and analyze overhead during planning to audits.

Inventory valuation risk

This can be happen, for example, when there is a significant level of aging

inventory in DIPL(Hossain, 2013). DIPL may not be properly supervised by

the Company's financial factors for the qualified audit committee. The

company may even lack the internal audit service, which is a key control in

high regulatory surroundings, such as buying inventory of DIPL from Asia

Audit risk

Auditors are not only concerned with analyzing commercial documentation

or finding errors in the documentation. Auditors are not only interested in

analyzing sales literature or detecting errors in the documentation. They are

also responsible for describing the quality of annual reports and trade

publications. Analysis of the case study, the observation results show that

the company is challenged with an operational risk and a cost of inventory of

the two risks. As a result, the audit risk will arise from the determination of

fairness in the annual report.(Selisteanu, Florea, & Buziernescu, 2015).

Companies manipulate the cost of gold sold to statement of work more or

less profit. In addition, the distinction between foreign currencies will straight

affect the interests of the company's balance sheet. Therefore, increasing

inventory and operational costs with the cost of gold sold because of global

sourcing, auditors should be more vigilant and should focus on appropriate

monitoring. (Selisteanu, Florea, & Buziernescu, 2015) Audit risk can be

characterized as a risk that the auditor may explain an inappropriate audit

opinion when financial statements appear to be significantly misleading. The

audit risk may be the risk of risk function of detection and significant

anomalies (Weirich, Pearson, & Churyk, 2014). Auditor risk based on DIPL

cases is mainly focused on both detection risk and material misstatement.

The risk of material misstatement may be referred to as the risk of significant

false positives in the financial statements before auditing. They involve two

elements, known as controlling risks and inherent risks

Reference

Blay, A. D., & Geiger, M. A. (2012). Auditor Fees and Auditor

Independence: Evidence from Going Concern Reporting

 Decisions*. Contemporary Accounting Research, 30(2),

579-606. doi:10.1111/j.1911-3846.2012.01166.x

Hossain, S. (2013). Effect of Regulatory Changes on Auditor

Independence and Audit Quality. International Journal of

Auditing, 17(3), 246-264. doi:10.1111/ijau.12002

Hrner, S., & Leidner, J. J. (2016). Economic Importance of the Client:

When Do Shareholders Care About Auditor

Independence?.

Selisteanu, S., Florea, N. M., & Buziernescu, R. (2015). Financial Audit-

Risks Identified In The Audit Planning Stage. . Annals of

University of Craiova-Economic Sciences Series, 1(43),

133-141.

Wan Ismail, W. A., & Kamarudin, K. A. (2016). Family Firms and Audit

Risks: The Role of Audit Committee Financial Expertise.

SSRN Electronic Journal. doi:10.2139/ssrn.2049692

 Weirich, T. R., Pearson, T. C., & Churyk, N. T. (2014). Accounting &

auditing research: Tools & strategies. Hoboken, NJ: J.

Wiley & Sons.