Case Study’s Summary

This study is being done over DIPL, which is an Australian company. Printing is the main business of the company. In the report, company`s financial statement is being analyzed to assess the ratios and to verify the authenticity of the statements. The manipulations done in the financial accounts to impress the shareholders are being assessed. In addition to this, the inherent risk factors are also being discussed in the report. The case study is being followed to prepare this report.

The case study of Double Ink Printers limited portrays about the audit which has been done by Stewart and Kathy. The main business of DIPL is to print magazines, books and advertising materials for advertising, educational and publishing industries on t which is based on a print-on-demand basis. Business details of DIPL are being given in the case study; besides this, the financial information of the company is also being given. Analysis of ratios is being done to assess the performance of the company and to identify the financial condition of the company as well. This information plays an important role in the auditing process and to evaluate the business. In addition to this, changes in the members of BOD, annual meeting discussion, IT system, etc. has also been depicted in the case study for evaluation in a better manner.

The analytical procedure is being pursued over DIPL, so that differences in company`s financial data from last three years could be anlayzed. To carry out the analytical procedure, analysis of ratios is being done for DIPL (Gramling, et al., 2012). The details of company`s financial statement and ratio analysis of last three years are as follows:

xCOMPUTATION OF RATIO ANALYSIS
Liquidity ratio Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
	2013	2014	2015	Changes
Current ratio	1.42 times	1.46 times	1.50 times	0.01 times
Quick ratio	0.82 times	0.94 times	0.84 times	0.0077 times
Working capital	$ 1,605,938	2,388,900	3,203,429	0.331580049
Profitability Ratios
	2013	2014	2015
Operating Profit Margin	10.09 %	8.90 %	0.08898715	-0.039581594
Net Profit Margin	6.89	6.07 %	6.83 %	0.27
Return on Capital Employed	40 %	30 %	20 %	16.04 %
Return on Equity	25.78%	21.24%	24.26%	1.96%
Return on Total assets	18.24%	14.40%	11.36%	12.56%
Debt equity ratio
Capital structure ratio	2013	2014	2015
Debt- equity	0.413 times	0.474 times	1.13 times	0.58 times
Interest coverage ratio	40.94 times	40.12 times	4.78 times	-0.29 times
Efficiency ratio
Efficiency ratio	2013	2014	2015
Receivable turnover ratio	–	11.08 days	9.25 days
Creditor turnover ratio	–	12.68 days	11.23 days
Inventory turnover ratio	–	12.83 days	10.75 days
Assets turnover ratio	–	2.61 times	2.06 times

This study concludes that several changes have been accounted over last two years into the company`s financial data. In order to make more profit, the company has also changed its some strategies and other changes are also being made. The new diversification of the company has also lead the company for holding market share in the market and sustaining more progression.

Over and done with accompanying ratio analysis over DIPL, it’s being evaluated that the financial factors have been influenced because of the various changes made by the company. Company`s liquidity ratio signifies that there is an increment of 1.77 % in DIPL`s current ratio ( Delaney & Whittington, 2009). Company’s high turnover, over last few years, is the reason behind these changes. In addition to this, it has also been evaluated that, because of the high turnover company`s working capital has also been increased. Formerly, company`s working capital was 16, 05,938 AUD that is being increased by 32, 03,429 AUD, in the year 2015. Besides this, company`s the quick ratio represents that company has been managed the liquidity in an effective way to manage the resources (capital) of the company and to encounter all small debt requirement.

Analysis of profitability ratio of DIPL represents that profitability of the company is being reduced over last year because of the operational changes as well as the external and internal changes being made in the company (Loughran, 2010). Company`s operating profit margin is being reduced by 3.95% in the year 2013, as prior to this, the rate of operating profit margin was 1.009 %; whereas, in the year 2015, this rate is being estimated as .88 %.  In addition to this, company`s financial condition has also been interrupted through other factors related to profitability ratio. Fall in the company`s profitability condition is also being represented by return on total asset ratios, ROE, ROCE and Net profit margin.

Question 1

Company`s efficiency ratios and capital structure ratio have also been studied for evaluating the growth as well as the performance of the company. As, the company`s capital structure ratio represents that from last two years, debt-equity ratio is being increased by 58.20%. The reason behind these massive changes in the debt-equity ratio is due to the fluctuations in the company`s liabilities and assets in last two years (PRASAD, 2012). In contrast to last year`s interest expenses, company`s Interest coverage ratio is also being decreased because of the high charges made in interest in the year 2015.

Last but not least, various ratios such as- efficiency ratios, inventory turnover ratio, receivable turnover ratio, Assets turnover ratio  and Creditor turnover ratio of the company are being evaluated so that company`s performance could be evaluated in context to its short term obligation and working capital.

As a result, it might be determined that because of the alterations were done in the business`s strategies, functions, and operations; many changes in context to the ratios have also been taken place ( Samociuk & Iyer, 2017). This concludes that it has become a tough job for the auditors to assess the changes and act consequently. It`s being assessed that might be the changes has occurred because of the mistakes or inaccuracies made by Jay and associates. At this instant, it’s the responsibility of the Stewart and Kathy to assess the inaccuracies and mistakes and act subsequently.

Stewart and Kathy`s new client is DIPL, therefore, it is essential for the auditor to pursue conduct company`s (DIPL`s) risk assessment to evaluate the risk elements and then make a decision by determining those risk causes, subsequently ( Rachchh, et al., 2015). By analysing the company`s case study, it might be evaluated that, the company could face several inherent risks in context to auditing compliances. Some of the inherent risk factors are as follows:

• The accountant prepares the company`s financial statement, without considering the guidelines; which states the guiding principles for preparing the financial statements or
• Fraudulent activities are being pursued by the accountant to prepare company`s financial statements( Delaney & Whittington, 2009).

After evaluating DIPL`s case study, it`s been analysed that, there is an increment in the company`s revenue over last year; besides this, some other factors represent growth of the company. However, the company`s profitability is still less. This aspect may have taken place because of the fact that company would have to the payment of high tax return to the government of Australia, because of the higher profits (Bragg, 2010). As a consequence, the company has indulged in certain fraudulent activities so that amount of profit could be reduced and less profit might be shown in the financial statement in order to pay less rate of tax to the Australian government. Therefore, it might be possible that the company has verified certain false transaction to decrease the profit level.

It`s being evaluated that some ratios depict the impressive performance and growth of the company; it may be possible that this aspect is portrayed in the financial statement so that stakeholders of the company could be impressed and by considering these impressive aspects, they could make high investments in the company. Company`s interest charges have also been increased by high rate, moreover, this can be a fraudulent activity or it is also possible that increment in the interest charge has befallen as a result of a massive amount of loan. These transactions have created complexity in the company`s financial statement ( Moeller, 2016). The rate of depreciation in the company is also high. In addition to this, there are some other factors as well, such as high amount of salaries are paid to the company`s employees which are not worthy. As a result, it can be concluded that misstatement in books of accounts can be an inherent risk for DPIL.

Question 2

Company`s (DIPL) case study reveals that business operations of the company are managed at the domestic level; as business functions are operated individually in Australia. But then again it is must for the company to follow the rules and principles of IFRS and GAAP to realize the complete requirement of the international level ( Porter, et al., 2014).  By following the rules and principles of the general accounting company could owe a favor from FDIC in context to huge investments. Through this, the company would get financial support and might become capable of solving various issues. The case study portrays that general accounting standard, rules and regulations, as well as a guideline, are not being followed in an appropriate manner by the company in preparing the financial statements, this may result in a rise in non-compliance risk for DIPL. As a result, it can be determined that it is essential for the company to emphasize on the accounting standards, rules and principles all through the preparation of the final financial statement.

The factors which represent misstatement in company`s financial statement are evaluated to assess the cause of the risk. Such factors and causes of risk are discussed below:

Interest amount- In the year 2013 company`s interest amount was 84379.0 AUD, whereas, in the year 2015, the amount of interest was 808038.0 AUD. This means the change in the amount of interest over two years is 285.87%. By going through the description provided in context to the company`s loan it can be evaluated that in order to maintain the capital structure and liquidity position, a huge amount of loan is being taken by the company( Pickett, 2010). Even though it is also being assessed that the amount of interest is still high to a certain extent and company has used this huge amount to manage the tax return. In addition to this, company`s revenue has also been increased from the previous year, therefore the company is mandatory to pay high tax return to government of Australia. For that reason, the company has shown a higher amount of interest to decrease the profit amount into the final statements with the intention to pay less tax to the Australian government (Brag, 2011).

Debt to equity ratio- Analysis of company`s Debt to equity ratio is being done. Through the analysis, it has been assessed that in the year 2014, company`s debt to equity ratio was 0.47; however, in the year 2015, this ratio increased by 1.13( Knapp, 2016). Moreover, such a massive amount was not required by the company for any of its new projects. Thus this amount was portrayed to influence the stakeholders and government and other stakeholder`s decision.

Each and every aspect of the company`s financial factors is being evaluated by the auditor to assess the factors related to the fraud. A study was pursued by the auditor over the process related with purchase and inventory, finance department process, cash receipts, printing process, e book revenue process; as well as the factors which are related to the company`s key risk inherent factor were also being analyzed by the auditor ( Pickett, 2010). Primarily, this information is being assessed from company`s financial statement and from BOD`s meeting and company`s new financial decisions.

Conclusion

It`s being concluded from the report that company has involved into fraudulent and unethical activities. As the accounting standards and principles are not followed by the company for preparing the financial statement. The profitability of company was portrayed in less amount to save the tax; whereas the revenue of the company represented higher amount. These aspects were used by the company to impress the investors or shareholders so that they could make interest in investing more amounts in the company. These fraudulent activities can become a reason for inherent risk for the company.

References

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