Analytical Procedures Processes Of Audit †Myassignmenthelp.Com

Question: Discuss About The Analytical Procedures Processes Of Audit? Answer: Introducation Analytical procedures are the processes of audit by the auditor to take the better clarity and understanding of clients business and changes in his business. Analytical procedures also helps to identify the potential risk areas to plan the further audit processes (Moreno, et. al., 2007). It also encompasses investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount (McDaniel, et. al., 2007). The auditor in the present scenario examine all the financial ratios to check the field of investigation that where he need to take extra care and due vigilance during the audit procedure. Applications of analytical procedure to the financial report information of Double Ink Printers Ltd. for the last three years are as follows: Ratios Explanation Audit Impact Current Ratio Current ratio of a company indicates a companys capacity to meet its short-term debt liabilities. Current ratio of the DIPL is sufficient to pay all its liabilities with all assets in his hands. The Auditor has to review the fact that in the particular case there is situation attached in which the loan company BDO finance group placed the requirement of current ratio be minimum of 1.5 : 1 on the minimum side. Quick ratio Quick ratio of a company indicates that how a company will meet out its short term liabilities with its available quick assets. Quick ratio of DIPL is adequate though there is a decrease in current year Quick ratio but there is not that much impact of this in financial statement. The quick ratio is satisfactory as per the industry requirement not much of audit impact is required. Receivable Turnover Receivable turnover can be used as an indicator that how well a company manages to use its assets. Receivable turnover has declined over a few years which in term depict the inability of the organization to convert their receivable into cash. The reason behind the delay in payments is to be checked and it is to be evaluated by the auditor whether there is existence of material misstatement in the case. Days in receivable Because of the decreasing Debtor turnover ratio, there is a diverse effect over days in receivable. Inventory Turnover Inventory turnover is not a major issue as it didnt deviates that much in the present scenario. Not much of impact Return on Asset Return on asset has declined too much in current year and it has to be examined very carefully by the auditor. The assets realization is on the lower side therefore it must be examined by the auditor. ROE Return on equity doesnt fluctuated that much that it has to be examined by the auditor. Not much of impact Times interest earned Debt equity There has been enhancement witnessed in the segment of debt part which was nil previously. Debt ratio is in accordance of the requirement of the loan company BDO finance, therefore not a big issue to be catered as part from auditor side. Gross profit GP of the company is decreasing over a span of time which has to be seen by the auditor. The reports and other financial data presented by the inventory and purchase department should be taken into checked with great relevance. Inherent risk is the situation of risk produced by error in the financial statement when assuming that there were no internal controls at that time (Hogan Wilkins, 2008). The auditor in this context should consider the reasons for the assessment given to the risk of material misstatement due to particular features of the applicable class of account balance, transactions, or disclosure, while designing the further audit procedures to be performed and acquire more persuasive audit evidence the higher the auditors assessment of risk (Arens, et. al., 2010). Some of the inherent risks discovered by the audit in the above case study are as follows: Embezzlement of stock: The consideration of different currency being used for purchasing the inventory in the accounts makes it a complex work which in turn can result to material errors in the financial statement of the organization. While on the other hand the method used for valuing the inventory is average cost which would lead to major omissions in the books like valuing the rotten inventory. Wrong method for depreciation: By straight line method the depreciation on printing presses, other production equipment and other equipment will be same but by the given case study, we know that the printing press can work only on print-on-demand basis. By the fact we can clearly state that the printing will differ every year i.e. production will differ every year which means written down value method will remain best for the presenting true and fair position of the machines and other equipments in financial statement of the organization (Arens, et. al., 2012). False statement or wrong representation when made by an individual intentionally to deceive the other party is termed as fraud. Fraud is generally done by the individual for his personal interest or purpose which is inappropriate for the organization. With the growth and magnification of the organization the DIPL observed errors with its financial statements. The company is appointing a firm of professional auditing to deal with the current situation and determining and analyze the current scenario of flaws in the financial statement of accounts of the organization (Hogan Wilkins, 2008). As per the new auditing professionals of the company, suggests some of the key areas where the organization needs to focus to minimize the risk of frauds and embezzlements which are as follows: Life of Fixed assets for calculating depreciation The Auditor is responsible for analyzing and evaluating the reason behind the change of the life period of the printing press to 30 years by the organization and he should detect that it can only be done for the profitability of the organization and not for some personal interest and biasness. Change in IT systems Auditor should check the proper reason behind the decision of changing the old IT systems by the company and should also evaluate the fact that whether it is the need of the company to upgrade or is it just only a chance to defalcate the old information because there was not enough staff to handle the new IT system at that time. References McDaniel, L. S., Simmons, L. E. (2007). Auditors' assessment and incorporation of expectation precision in evidential analytical procedures.Auditing: A Journal of Practice Theory,26(1), 1-18. Moreno, K. K., Bhattacharjee, S., Brandon, D. M. (2007). The effectiveness of alternative training techniques on analytical procedures performance.Contemporary Accounting Research,24(3), 983-1014. Arens, A. A., Arens, A., Best, P., Fiedler, B. A., Shailer, G., Elder, R. J., Beasley, M. (2010). Auditing, assurance services and ethics in Australia: an integrated approach. Arens, A. A., Elder, R. J., Mark, B. (2012).Auditing and assurance services: an integrated approach. Boston: Prentice Hall. Leung, P., Coram, P., Cooper, B., Richardson, P. (2009).Modern Auditing and Assurance Services,(4e). John Wiley and Sons, Australia. Hogan, C. E., Wilkins, M. S. (2008). Evidence on the audit risk model: Do auditors increase audit fees in the presence of internal control deficiencies?.Contemporary Accounting Research