Determine Evaluate And Business Intelligence Essay

Question:

Discuss about the Determine Evaluate and Business Intelligence.

Answer:

Introduction:

The financial analysis helps to determine and evaluate the performance of a company during a specific period of time. The financial ratios estimate the liquidity, efficiency, and profitability of the company. The financial information is important for the stakeholders as it helps them to make appropriate decisions (Qu, & Yang, 2012). The growth of an organization depends on the quality of products and services provided to the customers. The growth also depends on the management of all the resources and keeping the production cost low.

Ratio

Actual 2016

Budget 2016

Actual 2015

Industry Benchmark

Return on equity %

12.9

16.6

14.8

15.5

Return on total assets %

10.7

14.2

13.1

14.5

Gross margin %

8.5

9.0

9.5

9.0

Marketing expenses/sales %

2.6

1.8

2.0

2.2

Admin expenses/sales %

1.6

1.6

1.8

2.0

Interest coverage ratio

5.4

8.1

6.4

6.0

Days in inventory

33.1

30.4

31.1

30.0

Days in accounts receivable

50.0

48.0

49.7

45.0

Current ratio

1.3

1.2

1.2

1.5

Quick asset ratio

0.81

0.77

0.77

1.0

Debt to equity ratio

0.51

0.33

0.41

.40

The return on equity ratio shows that amount of money generated from the shareholders’ funds. It shows the ability of the organization to generate returns from the funds of the shareholders. The actual return on equity ratio in the year 2016 is less than the budgeted figure. In the year 2015, the actual return on equity is also less than the industry benchmark. The ratio shows that the ability to generate returns has decreased in both the year. The return on asset shows the ability of the management to generate return from the utilization of the funds. The actual return on total assets in the year 2016 is less than the budgeted figure (Jones, 2013). In the year 2015, the actual return on total assets value is less than the budgeted figure. The ratio shows that the ability of the management to generate returns from the assets has decreased. The returns for the company in both the year has decreased. The gross profit margin estimates the profit that is left after deducting the sales revenue from the cost of goods sold. The actual gross profit margin of the company in the year 2016 is less than the budgeted figure. In the year 2015, the actual gross profit margin is more than the industry benchmark industry. In the year 2016, the gross profit margin is high which means the overhead cost of the company is high. The actual marketing/sales ratio of the company in the year 2016 is more than the budgeted figure. The ratio in the year 2015 is less than the industry average (Horngren, 2014). The marketing expense in the year 2016 is more than the 2015. The actual administration expense/sales ratio in the year 2016 is equal to budgeted figure and in the year 2015 is less than the industry average. The administration expense in the year 2016 is higher than the year 2015. The interest coverage ratio shows the interest expenses paid by the company or the amount of due interest covered by the company. In the year 2016, the actual interest expense is less than the budgeted figure and in the year 2015 it is more than the industry average. The company is paying the interest expense in the year 2016. The actual days in inventory of the company in the year 2016 is more than the budgeted figure. The actual day inventory in the year 2015 is also more than the industry average. The actual days in the accounts receivable is more than the budgeted figure in the year 2016 and it is less than the industry average in the year 2015. The ratio shows that the company is taking time to collect all the due amounts from the debtors (Bragg, 2009).

The current ratio reveals the ability of the firm to pay all the obligations. The actual current ratio of the company in the year 2016 is more than the budgeted figure and it is less than the industry average in the year 2015. The current ratio above one means the company would be able to pay all the liabilities. The ratio of the company is above one in both the year (Pickett, 2005). The actual quick ratio in the year 2016 is more than the budgeted figure and it is less than the industry average in the year 2015 The company will be able to convert current assets into cash. The debt to equity ratios reveals the debt of the company. The actual debt to equity ratio in the year 2016 is more than the budgeted figure and it is also more than the industry average in the year 2015. Thus, the ratio clearly shows that the debt level of the company is high. The financial ratios clearly show that the organization is not able to achieve the budgeted figure in many cases. The ratios show fall in the financial performance of the company.

The auditors play a significant role in providing fair and accurate financial statement report of the company. The process of audit ensures fair representation of the financial statement of the organization. The audit control procedure and internal audit function effect the process of preparing the financial reporting. The company's internal auditors can help the external auditors as well as the management team of the organization (Powers, & Needles, 2012). The internal control system ensures management of all the processes and carrying out all the processes. The risk of the company can be decreased with the implementation of the effective control system and follow all the rules and regulations. The stakeholders of the organization get significant information from the financial report that helps them to make financial decisions. Thus, the representation of the fair of the organization is very much important. The auditors also examined whether the company has followed the accounting rules and procedures. Thus, the financial report shows clear picture and performance of the firm. Thus, the external auditors and internal auditors ensure fair representation of the statements within a period of time.

Audit steps to decrease risk

The auditors are responsible to analyse the financial statements and present it fairly in front of the stakeholders. The auditors of the organization can decrease the risk level by determining omission, errors, and fraud in the financial statements. The internal auditors can determine help to determine the issues in the following ways:

Roles and responsibilities: The management team faces many difficulties in segregating the duties between the staff members of the organization. In the small business enterprises, the risk of errors or frauds is less than the larger companies where complex functions or processed are carried out by different people (Scott, 2015). The internal auditors determine the fraud or errors that may exist in the process and can provide suggestion to overcome the risk.

The auditors keep an eye on the internal control processes and systems that help to decrease the level of risk. The internal control increases work quality processes and decrease the fraud risk. The fair representation of the financial statements can be done with the implementation of the effective control system (Spiceland, 2010).

Security concerns: The weak IT security system and control can affect the processes of the organization. The internal auditors can bring new systematic and disciplined approach to manage the business operation and mitigating the risks with the organization.

Staff members: The employees or managers can take help from the information provided by the auditors. The staff members would be able to determine the risks and mitigate it.

Senior management: the management team can make significant decisions on how to deal with the future challenges and risks with the help of the information provided by the internal auditors (Rahman, 2015).


Internal control weaknesses are important for the auditing tax as these can reduce the accurateness of the auditing. Therefore, it is deemed that the internal control weakness ought to be decreased to perform any audit task with a business organization. There is various internal control weakness that may be the cause for the loss or spoil of the asset, resources and it may decrease the revenue of the business organization (Weil, 2017). These internal control weaknesses can be handled easily or may be rectified in the easy process by slightly changing in the present process or introduce the basic internal control.

The documentation provides proof of the underlying transactions. It is deemed as the input to establish accurate financial records. The financial document should be pre-numbered for ensuring that the whole transaction is stored or recorded and account for. This will help in stopping to record the exact transaction in multiple places and in multiple time. The reason behind this is that there should not be any duplicity in the numbering system in the computer system (Spiceland, 2010). With the help of accurate numbering system, the tracking of the documents can be easy. Tracking the documents for linking the follow-up queries of the customers from their past transaction can be easier by effective numbering system in the document. Appropriate documentation provides efficiency and make the financial record and tax calculation easier.

Main business cycles not appropriately defined

It is important for the business organization to recognize and define its main business cycle as it supports in understanding the pros and cons of the business, the peak time of the business as well as bad time for the business. Furthermore, it supports in making effective strategies that help in business growth and development. The auditing help in recognizing the key business cycle of the business organization. Moreover, for the auditors, it is important to detect the main business cycle of the business organization as it helps them in delivering effective auditing job for an organization (Ricchiute, 2006). The business organizations have different crucial areas thus diverse business cycle can be present for the business. Moreover, the auditors have to recognize the business cycle of the business organization. The sales figure, accounts receivable, banking procedure, cash management, account payable, and purchase. For the business organization the selling products, as well as inventory control is deemed as one of the most crucial cycles. While the development and change are brought into the process, the entire employees must be informed in quick basis for the training as well as keep pace.

The authorization of the procuring should happen before the commitment of the resources. Trust on the size of the business organization, the rate of power can be introducing better decrease for the threat or risk of wrong expenses. For example: with a certain amount of order the fluctuation of the dollar rate can be decreased the entire expenditure value (Parrino, 2015).

The companies use to be so involved with the day to day activities and business operations so that the companies use to forget to re-examine the business processes of the company. The owner of the business or the management should take few time and must take an interest in the review of the whole business process and has to verify the business record of the company. The frequency of the financial data re-examination is hugely dependent on the volume of the transaction as well as types of the business; however, the review of the financial data should be conducted on a monthly basis.

Lack of physical and logical security

Lacking the physical security of the property of the business as well as the resources of the business possibly result in damage and severe loss to the assets as well as the property of the business. The access to the petty cash, valuable equipment, and stock must be limited access to the limited person in a business organization. These should be handled by the proper staffs and placed in the secure area (Kieso, 2007).

The aforementioned internal control needs to be addressed appropriately. Besides this, there are other important measurements that impede the audit job and the auditor may perform error due to these measurements. The business organization should maintain the ethical policies as it helps the business organization to establish the requisite ethics within the organization and by this way the employees of the organization are also acting ethically. The help in reducing the legal threats for the business and as a result the business can provide much more emphasis on the core business activities that support in improving the efficiency of the business.

There are significant impacts can be seen in the auditing task if the internal control weaknesses are not addressed properly prior to the beginning of the auditing task. The internal control weaknesses have a significant amount of impact on the auditing task of the business organization and the internal auditors as well as the external auditors have to detect the internal control weaknesses within an organization before starting any auditing task for the company. The for wrong documentation of the records regarding the financial transactions can heavily misguide the auditors, and they can assess the wrong financial position of the business organization that is undertaken the auditing task. The wrong or erroneous documentation of the financial record may lead the company to make improper balance sheet, or income statement or cash flow stamen that drop severe impact on the auditing task (Helb?k, Lindset, & McLellan, 2010). Moreover, it increases the chance for the wrong audit. The financial statement can be of three types: the balance sheet or position statement that help in providing the information about the assets and liabilities of the company and provide actual knowledge about the financial position of the company. In any manipulation in this balance sheet can provide entirely wrong information to the users of the financial statements like the shareholders and investors of the company. The error in balance sheet records the financial position of the undertaken company can be indifferent that lead the investor to take an improper decision. The income statement is also an important document that provides important knowledge about the income of the company. The income statement often stated as the profit and loss statement as it provides the necessary information about the profit and loss of the business organization. The income statement helps in knowing the income of the company as well as the incidents when the company acquires losses. Moreover, any erroneous documentation will provide the wrong record that changes the income statements and provide wrong information to the users. The cash flow statement is also important for auditing task it provides the information about the cash flow within the business organization (Welch, 2014). The cash flow can be of two types: inflow of cash, and outflow of cash. The cash inflow happens when the company trade something then the clients make a payment that inflow into the company's account. On the other hand, when the company pays for the raw materials, employees salary and wages, equipment and machinery as well as many other types of expenses it shows that the outflow of the cash (Dassen, Schilder, &Wallage, 2005). In the case of wrong documentation, the cash flow statement is also changed and provide wrong information to the user of the financial statements that misguide them and lead to the wrong financial decision.

Audit steps to reduce risk

The person or entity which perform the auditing task has to take few steps that help in reducing the auditing risk. The individual auditors should verify the entire document of the organization related to the financial record of the organization. The reason behind this is that it can be possible that the accountant may provide wrong information or record of the financial transaction of the company (Cosserat, &Rodda, 2009). In the case of any wrong information the auditing task will be affected, and the financial position of the business organization can be assessed wrongly. Therefore, it is recommended that the auditors must check all the documents of the company where any financial related data exist. The journal entries are important for the checking as these use to be the fast entry of the transaction. Besides this, receipt, invoice and bills also must be checked in a proper way that helps in recognizing the error in the financial statements. The inventory is another risk so the auditors should verify the inventory minutely that help in proving an efficient audit of the business organization.

As business intelligence system is being used by the help of the electronic utilities, the enhancement of the various form of the work can be easily depicted by showing the increment of the auditors interest in the form of the real-time information and also the qualitative production of the production of the system can be easily considered by showing the appropriate structure of the work and also the internal management system can be easily constructed by showing the importance of the financial system (Britton, & Waterston, 2013). The Computer-assisted Auditing techniques are developed for the management of the risk which is being used for defining the instruments that are designed for the construction of the analysis by the help of the certain instruments. The formation of the information technology is showing the growth and the structure by showing the increment in the performance and the efficiency of the audit process. Therefore, the techniques seem to be increasing the appropriate assessment of the work which is being used for showing the appropriate expansion of the work and also it enables the establishment of the formation of the work process. It can be clearly shown that the advancement of the techniques is being used as the form of the business tools that are approved for the betterment of the smart system and also the performance can be measured by the help of the statistical analysis. The specialized audit software program can be illustrated in the form of the enhancement of the work which is being conducted for the betterment of describing the practical situation of the entity. The CAAT is identified as the important step which is being used for showing the analysis of the financial statements and the other customer confirmation procedures (Brealey, Myers, & Marcus, 2018). Therefore, the classical techniques are depicted to be based on the small transaction and also it is identified to be not reflecting the original situation of the entity.

The auditors are using the CAAT process for the purpose of improving the auditing processes which is explained to be a part of the software program. This software is also identified to be used for extracting and analysing the data which is being influenced by showing the analysis of the data, and also it contains the spreadsheets which are referred to as the databases and the statistical analysis. Therefore, the construction of the process is being used by showing the enhancement of the research and construction work can be made in a simpler way by showing the improvement of the work and also the explanation of the development of the work (Besley, 2016). The extraction, analysis of the data and the explanation of the work are being constructed by showing the enhancement of the research. The expansion of the research is being used by showing the following advantages that can be easily achieved which is identified as follows: -

  • Independence from the audited system is being shown in this case which is showing the appropriate read-only copy, and also it cannot be influenced by showing the proper construction of the work. Thus the appropriate structure is being discussed by showing the positive patterns for the explanation of the tests performed.
  • The ability for generating the electronic sources is also identified as the ability to show the auditor's coordination, and also the expansion of the business is being shown by considering the standardized audit limit. The report format is being explained by showing the working of the auditor which is being used by showing the unexplained patterns in the audited data (Beechy, &Conrod, 2008).
  • The possibility of detecting the fraud through the use of the tools are shown to be identified by showing the unexplained patterns in the audited forms of the data and also the simple or the complicated techniques can be easily used for the purpose of computation.
  • The continuous monitoring processes are easily involved in this case which shows the accumulation of the objectives that are depicted to be showing the appropriate formation of the structure. It also clearly explains the structure regarding the identification of the monitoring activities which is crucial for gathering the data (Appannaiah, Reddy, & Putty, 2010).

Therefore the forms enable the auditor to establish an appropriate atmosphere which is being used by showing the necessary changes in the systems as undertaken for the study. The variation of the system is being constructed by showing the complication in the system techniques which is being used by showing the enhancement of the application. Thus the operational risks can be easily mitigated that shows the strengthening of the structure and also the formation of the study can be made by explaining the monitoring activities (Alexander, Nobes, &Ullathorne, 2016).

References

Alexander, D., Nobes, C., &Ullathorne, A. (2016). Financial accounting. Harlow, England: Pearson.

Appannaiah, H., Reddy, P., & Putty, R. (2010). Financial accounting. Mumbai [India]: Himalaya Pub. House.

Beechy, T., &Conrod, J. (2008). Intermediate accounting. Toronto: McGraw-Hill Ryerson.

Besley, S. (2016). Corporate finance. [Place of publication not identified]: Cengage Learning.

Bragg, S. (2009). Accounting best practices (2nd ed.). Berlin, Heidelberg: Springer Berlin Heidelberg.

Brealey, R., Myers, S., & Marcus, A. (2018). Fundamentals of corporate finance. New York, NY: McGraw-Hill Education.

Britton, A., & Waterston, C. (2013). Financial accounting. Harlow: Financial Times Prentice Hall.

Cosserat, G., &Rodda, N. (2009). Modern auditing. Chichester [u.a.]: Wiley.

Dassen, R., Schilder, A., &Wallage, P. (2005). Principles of Auditing. Pearson Education UK.

Helb?k, M., Lindset, S., & McLellan, B. (2010). Corporate finance. Maidenhead, Berkshire: Open University Press/McGraw-Hill Education.

Horngren, C. (2014). Accounting. Toronto: Pearson Canada.

Jones, M. (2013). Accounting. Chichester: Wiley.

Kieso, D. (2007). Intermediate accounting. New York

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