Internal Audit and Compliance Function †Free Samples to Students

Question: Discuss about the Internal Audit and Compliance Function. Answer: Introduction: From the valuation of DIPL case study relevant need of analytical procedure could be identified, which could directly indicate the need of audit procedures. The overall identification of analytical measures such as benchmarking and ratios is mainly identified as the overall measure, which could help in evaluating the results provided by an organisation. With the help of benchmarking analyst are mainly able to identify relevant measures such as profitability and expenditure that is conducted by an organisation.Benchmarking allows the analyst to evaluate the company's performance with the current trend and identify the loopholes that is hampering its progress (Cope et al. 2017). However, the use of ratios mainly allows the analyst to evaluate the increments in financial position of an organisation comparing it previous financial results. Hence, financial ratio evaluation is mainly used in analysing the financial statement of DIPL. Particulars 2013 2014 2015 Current ratio 1.42 1.47 1.50 Quick assets 0.83 0.94 0.85 receivables turnover 13.78 8.73 8.57 Days in receivables 26.49 41.83 42.61 Inventory turn over 12.50 11.84 8.82 Return on total asset 18.25% 14.41% 11.37% ROE 25.78% 21.25% 24.26% Debt to equity 41.31% 47.48% 113.44% Debt to capital 7.25% 5.42% 31.69% Interest coverage 41 40 5 gross profit 17.55% 16.13% 15.20% net profit 6.90% 6.08% 6.84% Ratios Explanations Audit impact Liquidity ratio Relevant upward trend in the financial current ratio is seen from 2013 to 2015 The evaluation of the overall financial performance of DIPL can be conducted from the above table, which directly portrays the overall financial improvements that is achieved by the company in three fiscal years. Starting from the evaluation of current and quick ratio it gradually increased over the period of 3 fiscal years.However, the relevant gap between the increments is relatively higher, which only indicates that the companys performance needs to be evaluated (Earley et al. 2016). Therefore, the overall liquidity ratio of the company mainly increased over time, which could in turn indicate the use of audit report for evaluating performance of the company. Efficiency ratios The overall Efficiency ratio of DIPL has relevantly improved from 2013 to 2015 Moreover, the overall financial ratios such as efficiency ratios of the company could also be evaluated, which could in turn detect the overall financial stability of DIPL. The overall receivables turnover ratio, days in receivables and inventory turnover ratio of DIPL has relevantly improved over the three fiscal years. This mainly indicates that the companys financial stability and efficiency has relevantly improved over time. This mainly helps in identifying the relevant financial stability of the organisation for generating higher revenue from investment. Henczel and Robertson (2016) argued that the overall efficiency ratio of the company could mainly help in identifying the relevant efficiency of the management to conduct relevant activities to improve performance of the organisation. Profitability ratio The overall profitability ratio of DIPL is relevantly declined over the period of 3 fiscal years The overall profitability ratio of the company is mainly identified from net profit margin, gross profit margin, return on total assets, and return on equity that is provided by DIPL. In addition, the companys overall probability ratio has gradually declined over the period of three fiscal years, which indicates that the companys revenue generation capacity has declined. This mainly states the overall expenditure of the company has gradually increased over the period of three fiscal years. The overall debt to capital, debt to equity and interest coverage ratio of ratio of the company has mainly declined over the period of three fiscal years. This only indicates that financial stability of the company has declined, which directly contradicts with the financial stability portrayed in liquidity ratio (Hussein et al. 2017). There are several risks that might be identified from the evaluation of risk, which could directly result in conducting the audit approach for DIPL. Furthermore, the declining revenues need to be evaluated by the audit procedure, which could mainly help in identifying the overall financial capability of the company. However, the overall current ratio of the company has directly increased, while other financial ratio has declined, which only indicate the company could have manipulated the financial report. This mainly raises the concern for the analyst, where relevant audit procedure could directly help in evaluating the financial condition of DIPL. Therefore, the needs of audit procedure are directly influenced by the financial report that is portrayed by the company (Ismanto and Hassan 2017). Inheritance risk leading to Material misstatement risk of the company There are relevant two different types of inheritance risk, which could be identified from the evaluation of DIPL case study. The overall financial stability of the company could be identified from using relevant inheritance risk. Inheritance risk Material misstatement Risk from information technology The overall financial information risk is mainly identified from the implementation of new technology, which is used by DIPL. In addition, the overall implementation of the new technology was mainly conducted quickly, which directly increased pressure on the employee transferring the transaction into the new accounting software. The overall time allocated by the management in converting the new accounting software was minimal, which directly increased the chances of material misstatement that could directly lead to inheritance risk. Furthermore, minimal employees also conducted the transfer of the accounting software, where adequate workface was not provided to the accounting department. This could directly result in increased material misstatement conducted by the employees, which could directly affect h inheritance risk of DIPL. Therefore, the overall misrepresentation of the transitional data in the overall accounting software could directly increase the chance of manipulation in the financial report. This could directly increase the material misstatement conducted in the financial report and reduce value of the announced financial report. Lowell (2016) mentioned that overall increment in the material misstatement of the financial report could directly reduce the friction of ratios, which are used by analyst to understand financial condition of the company. Risk from financial reporting The second inheritance risk from the evaluation of DIPL case study is mainly identified as the risk from the financial reporting, which is prepared by the management. There is relevant possibility, where the management to comply with the loan requirements of BD Finance directly manipulates the overall financial report of DIPL. This move conducted by the management to DIPL for supporting the loan requirements could directly increase the inheritance risk of the organisation. The current ratio needs to be maintained at 1.5 levels, while the overall debt to equity ratio needs to below 1. Therefore, it could be assumed that the management could directly use the overall financial stability of the organisation to support its loan requirements. This could direct lead to manipulation that is conducted by the management to its financial report and raise the inheritance risk. Seago (2016) mentioned that overall financial report manipulation that is conducted by the management could directly inc rease inheritance risks and hamper viability of the declared financial report. Risk factors of the company There are relevantly two different types of risk, which could be understood from the evaluation for DIPL case study. In addition, the overall financial stability of the company could be used in identifying the relevant risk factors that could raise the overall material misstatement. The relevant risk factors could be identified from the valuation of DIPL case study is mainly depicted as follows. Fraud risks Audit Impact of fraud risk Increased Control environments used by DIPL A relevant control environment is used by DIPL in changing the overall financial accounting software. The changing process of the accounting software was mainly conducted on an urgent basis, which directly increased the chance of manipulation conducted by the employees in recoding the transactions. These manipulations directly increased the chance of wrong transactional record and increase the material misstatement in the financial report. The pressure conducted on the employees could directly increase the chance of manipulations (Sobel 2016). Debt obligations of the organisation The overall manipulations could directly be raised from the overall debt obligations that are imposed in DIPL. Therefore, the management could manipulate the overall financial report to generate the required debt and current ratio for continuing the loan. On the other hand, BD Finance needs relevant current and debt to equity ratio, which needs to be maintained for allowing DIPL to utilise the loan provided by the financer. Therefore, it is estimated that the management could directly manipulate the overall financial report for complying with relevant debt obligations (Summanen and Wilshire 2016). Identified fraud risk from the scenario There is relevantly risk, which could directly affect the overall audit plan of the organisation. In addition, these identified frauds might reduce the overall viability of the audit report, as it might directly hamper the audit procedure. The overall debt restriction of the organisation could directly affect the overall financial report, as the management could manipulate the financial report to support its loan requirements. This could directly increase the risk of audit procedures, which could not be deducted in the audit evaluation. Therefore, the second problems that might affect the audit procedure is the calculation of cost of goods that is been purchased by the organisation. 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