The analytical process has supreme importance for the assessment and review of the financial data that has been gathered from the financial statements of the company under consideration. During the time of constructing the plan of audit for Double Pink Printers Ltd (DIPL), the analytical mechanism of financial data is regarded as the most appropriate and cherished component. It requires to be cited that the audit plan of the organizations gives essential path and direction to the auditors while undertaking the process of audit during a specified time period. With the help of a distinct note, the audit plan aids the auditors to keep track of the audit costs in order to restrict any miscommunication and misunderstanding with the clients who require audit (Hardy 2014).
The analytical process of the financial data of DIPL answers to the method of scattering the financial data from various types of financial disclosures of the firm. It is even seen that there are various categories of techniques that aids in carrying out the analytical mechanism of the financial data. By taking help of the analytical process for the examination of the financial data, the accountants and the managers of finance of the firm exploits this data so that effective and several types of decisions with respect to accounting and finance can be undertaken. Furthermore, by taking help of the general sized analytical approach of the financial data, the finance managers of the organizations gain the authority to dichotomize the financial disclosures of the firm from various financial insights (Kend et al., 2014). It has been observed that one of the significant advantages of this is that it aids to give out assistance for the construction of the financial statements and undertake a comparison of the financial statements of the firms for the last three accounting years.
By taking help of the analytical process, the finance managers of the organizations can exploit the financial information from the financial statements and they can authenticate the method of financial broadcasting of the highlighted data. For instance, the process of financial reporting of the net liabilities and the owner of the equity can be deliberated in this respect along with the excursion of the data (Moroney et al., 2014). It requires to be cited that benchmarking has been taken as the chief analytical process of financial data and it can be exploited for the construction of the audit plan of the company.
By taking help of the process of benchmarking, the finance managers can recognise the modifications in the financial statements of the organizations. Furthermore, the actual factor of these alterations along with their core factors can be recognised. Along with the method benchmarking, ratio analysis is regarded as a crucial analytical process of the financial data (Min, & Lv 2017). The method of ratio analysis aids in the construction of the audit plan by undertaking a comparison of the financial reports of more than one organization.
With respect to the case study, the implemented analytical process has a significant impact on the construction of the audit plan. Additionally, it even has the significance in distributing the financial data within several accounting and financial departments of the firm. The following ratios can be constructed as these are a part of the analytical technique.
Table 1: Ratio Analysis
(Source: as created by Author)
With the help of the table that has been constructed above, it is observed that there has been a rise in the current ratio of DIPL from the year 2013 to 2014 and the value has increased from 1.42 to 1.46. In the year 2015, the current ratio accounted to 1.50 with a rise of 0.4. It has been noticed that there has been a major variation of the financial report of DIPL for the last three years which has shown the sum of the net profit of the firm from the net sales. Furthermore, by taking help of the profitability analysis of DIPL, the finance managers receive an insight about the expenses of the organization. It is seen that by taking help of the evaluations of the financial reports, the finance managers can gain the information about the efficiency of the organization’s budget with respect to the diversification requirement of the company (Green et al., 2017).
The DIPL auditors can gain knowledge and idea about the present financial condition of the firm by examining the financial issues and the ratios. By observing the table depicted above, it can be cited that there has been a reduction in the solvency ratio of DIPL from the year 2013 to 2015. This specific pattern in the solvency ratio aids the managers in the understanding of the financial performance of the firm. By taking help of the ratio analysis, the finance managers can determine the cash flow amount in order to meet the short and long term responsibilities of the firm. Furthermore, it can be cited that the assessment and the comparison of the performance and the ratios of the company can aid the financial managers to determine the financial condition and performance of DIPL over the past three year time period. Additionally, the finance managers can determine whether the present financial situation of the firm is unfavourable or not (Shah et al., 2017). In circumstances of a unfavourable the DIPL managers requires remedial actions in order to bring back the efficient financial condition of DIPL. Therefore, by examining the tables that have been constructed above, it can be cited that the analytical techniques of the financial data has significant figures for the organization.
The risks that are in association to a business can be described as the potentiality of the organizational inability in order to reach the objectives of the organization. There have been various factors of risk that are related to DIPL and this makes the firm ineffective to attain their objectives. It has been observed that DIPL has been unable to record various financial transactions of their activities (Rahim & Idowu 2015). By looking at the case study, the faults of the management have a direct relation with the unreliable and futile planning of the several sales, financial and marketing operations of DIPL. With respect to the case study there have been specifically two factors of risk that have a significant effect on restricting DIPL to attain their goals. They are explained as follows:
The risk associated with finance can be explained as the ineffectiveness of an organization in order to payout their liabilities that are in nature long term. With the rise in the extrinsic liabilities, the extent of risk even gets raised. The debt percentage of DIPL in accordance to their equity by comparing with the figures obtained for the last three years have increased significantly in the year 2015. It is even observed that there has been a rise in the payment pressure that are in relation to liabilities of loan payout and the fixed rate interests of the company within a stipulated time period (Carson et al., 2014). The observations have indicated that there exists a challenge to the solvency condition of DIPL in the long run if DIPL is unable to make payments for the principle and the interest amount.
Misstatement of the financial statements:
There exists a chance that DIPL may look to make transformations in their financial statements in order to maintain their debt to equity and their current ratio in line with the contract agreement with the borrowing firm. DIPL in order to preserve their current ratio may look to increase their current assets with the help of the rising receivables or inventory values as well. DIPL tries to preserve their debt-to-equity ratio looks to increase their equity values with the help of the rising retained earnings value.
The use of information technology within DIPL creates a serious amount of challenge for them. The scarcity in the control of information technology may have extreme effect on DIPL. There was a significant amount of burden that was stressed over to the IT personnel by the management of DIPL in order to conclude the technique in the year 2015. The accounting information process has threat related to security and this has mainly been due to the natural and man-made calamities (Sutherland 2017).
DIPL has been unable to maintain the equivalency among the current software process and the innovative accounting system. There has been an issue of the ineffective transaction allocation. The periodicity concept of accounting has not been followed by DIPL. Therefore, it can be seen that it could lead to an ineffective disclosure of the profit condition as well as the financial condition of DIPL (Varughese et al., 2014)
The backdrop data of DIPL that has been gathered with the help of the case study has disclosed the potentiality of the introduction of the in effective financial statement construction processes of DIPL. The important factors of risk that are associated with the use of these practices can be described as follows:
Types of Risk
Details and Identification
By examining the information gathered from the DIPL case study, it can be noticed that the key risk of counterfeit is related with the staffs and the employees of the organization, as they have the possibility to be associated with the operations. The key factor that is associated with the risk is the discontent within the employees of the corporation (Joshi et al., 2014). According to the case study that is associated with DIPL, there has been an observation that there has been extensive stress from the side of the management so that the new accounting process can be implemented. As the implementation of the concerned accounting system establishes a enormous strain on the employees, there exists an increased amount of risk as the employees may be associated with malpractices (Gu et al., 2017). Therefore, in order to act as a remedy for the reconciliation process, the employees of DIPL may make use of malpractices and this process may result to financial report misstatement. According to the concerned case study, because of inefficient introduction of the innovative accounting software, the company accountants have been unable to record in a proper manner, the financial transactions and the initial accounting for the present accounting year (Diez et al., 2015). Furthermore, the fraudulent risk can be discovered in the mechanism in order to choose the CEO succession of the organization. Due to this effect, there can be an increased opportunity of intrinsic risks within DIPL.
Risk related to Financial Reporting
During the business activities of DIPL, the other key risk can be noticed in the mechanism of financial reporting of DIPL (Beiles et al., 2015). During the situation, if the stakeholders of DIPL have key financial anticipations from the financial presentation of DIPL, there is an increased probability of malpractices in the financial statements from the side of the organization. It has been observed that the management of DIPL makes alterations in the financial reports thereby showing a false presentation to the stakeholders that the organization has been undergoing financial growth and effective operations. Therefore, it can be cited that the risk of fraud in the reporting of the financial statements is one of the key risks in DIPL.
With respect to the given case study, there has been a major deficiency in the valuation of the raw materials of DIPL that is on the basis of the mechanism of the aggregate cost. The key factor has been the rise in the cost of paper that has been way higher than the aggregate cost. Therefore, it can be concluded that this is not an efficient method. The principal risk associated with the process of the introduction of the innovative accounting software can be recognised by taking assistance of examining several steps of the jobs within the organization (Singh et al., 2014). Furthermore, the evaluation and assessment of the financial statements of DIPL aids the administration to discover the fraudulent risk that is associated with the reporting of the financials. According to the discussions made earlier, the assessment can be undertaken with the assistance of several analytical techniques that is known as ratio analysis, benchmarking and other financial mechanisms (Stewart et al., 2015). It is essential for the administration of DIPL in order to complete the analysis and assessment mechanism in a timely manner.
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