HI6026 Audit - Assurance and Compliance Assignment
Questions:
Required:
Based on the background information contained in the case, explain whether it will be necessary to use the work of an expert in the audit of DIPL.
Question 2:
You are at the planning stage of the audit of Double Ink Printers Ltd (DIPL) for the year ended 30 June 2017 and have been asked by the audit manager to assists determine the materiality levels.
(b) Explain why the factors identified in (a) above are relevant to your calculation of the preliminary figure for overall materiality.
(c) Describe how the factors identified in (a) above will influence your preliminary for overall materiality in the audit planning process.
Answers:
Answer 1
An expert opinion is the call of the hour to set up an up to the mark type of analysis arrangement to cope up with the various ratios and the drawn-out financial statements with respect to DIPL. The present ratio of the company is 1.50 and the quick ratio is trading at 1.0 which is reflects a strong position of the company but this result also has to be answered briefly which requires an analytical base. A convex shape of the gross and the net profit respectively need to be answered on a point which needs technical assistance (Guerard, 2016).
The assistance of an expert seems logical and necessary as it helps in making important decisions and as a whole to present a firm and reliable base of the company and in turn manage the finances of the company positively. All this is possible only with the help of an expert assistance. It is important for the co
mpany to keep a record of its performance and to compare it with the present situation so as to make perfect plans for the future (Davies & Crawford, 2012). All this can be done with ease with the assistance of an expert. This will ensure a positive beneficial track for the company.
Information on finances collected from the previous records can be well explained by an expert with exact reasons. For example, if the company is experiencing a positive increase in its turnover then it is beneficial for the company but its explanation and reason is also mandatory for future purposes. This can also happen because of the showy statements made up which don’t even exist (Davies & Crawford, 2012). This is why an expert is needed to as totally the transaction with the debtors and also the creditors to gain the exact and real picture of the situation. A random check on the records is necessary so as to detect written off balances or and out of bounds settlements which have to be eliminated by the auditors immediately (Matthew, 2015).
Answer 2
The material state is attained by an item if its representation or non-representation can dominate the financial statements on a large. It affects the shareholders, investors, bankers, etc.
(a) Factors dominating the preliminary figure for overall materiality for the audit
It is fully the duty of the auditors to look for material items to be included in the audit list of the company. This is because these material items have the potential to dominate and affect the financial statements of the company through their representation or non-representation which can lead to economic instability (Geoffrey et. al, 2016). The yardstick percentage based upon the anticipation of the user’s leniency for misstatements is presented below:
|
Factors |
High |
Medium |
Low |
|
Revenue |
2% |
1.50% |
0.50% |
|
Profit Before Tax |
10% |
7% |
5% |
|
Total Assets |
2% |
1.50% |
0.50% |
|
Equity |
10% |
7% |
5% |
|
Net Current Assets |
10% |
7% |
5% |
The factors are listed below:
Revenue
The most crucial pillar of any company is the revenue which has been seen to increase considerably in the case of DIPL. Income or item of expense overtaking it by 1% attains materialistic state and has to draw into the list of audit (Gay& Simnet, 2015).
Profit before tax
If the incomes overtake the profit before tax by 5% or is an item of expense then it must be listed for audit as it attains the state of a material.
Total assets
It includes both the current and non-current basis as well as the inventory being handled by following the first in first out system. All this is based on the scenario at the end of the year.
Equity
The current ratio of 1.50 and dept-equity ratio of less than 1.0 is the main target of DIPL which makes it purely materialistic and its need to be included on the audit list.
Net current assets
Increase in the profit of the company is the main common target which sees the inclusion of the materialistic equity in the audit list. Overtaking of the equity by 5% results in the inclusion of the material in the list.
(b) Relevance of the above factors in the calculation of the preliminary figure of overall materiality
All the above-mentioned points are important for determining the financial status of a company.
Increase in costs can result in a decrease in profit thought the revenue increases. This can easily hamper the equity and capital of the company. If a case arises in which the profit before tax is unstable then the other mentioned points above should be considered very carefully and thoroughly to make decisions and to make appropriate future plans if, with this situations, revenue also increases parallel to it (Church et. al, 2008). It should be seen that these points are individuals and are not dependent on others so their auditing should be done on an overall basis.
All the above-mentioned points have a dominating factor in the financial statements and the financial decisions of the company. DIPL has undergone changes from financial terms to its CEO so it is the duty of the auditors to cope up with the situations. The materiality levels are set in consideration of these facts (Heeler, 2009).
The overall operational efficiency and performance ability of the business is judged by these factors.
(c) Influence of the above factors in the auditing processes
The auditor needs to verify every transaction. But, it needs to be noted that there is a constraint when it comes to time and hence only the financial transactions can be evaluated. Before providing the opinion in terms of books of the account he contains the independence to put a question to the intention of the management whether any transaction should be considered in which he opines that was not in the company’s interest (Gay & Simnet, 2015). If a huge sum of money is borrowed by the company against a pledge then the auditor should put forth a question as to what is the utilization of the funds that are borrowed. In a large business it is almost impossible to rectify all the transaction and so an average platform s set up by the auditor in order to detect all the materialistic transactions (Carcello, 2012).
All these points have a state of materiality which gives them the dominant power over the financial decisions like the appropriate balances or classes of transactions and so it is necessary to undertake a simple but effective balanced procedure to follow the audit process (Roach, 2010). As mentioned above that DIPL has undergone a lot of changes in the accounting system so the upgrade to a new system overall has been a difficult situation. So it is important to gain a proper understanding of the closing balance of the old one and the opening balance of the new one (Elder et. al 2010).
It is important for the auditors of the company to see the book of records for all the workings and the performance of the company. All this requires a much more strategic defense and arrangement system which will carry on the works with ease. A relational bridge can be set up between the Income statements and the balance sheet with the help of a variety of materialistic items and as they are materialistic in nature so they also have a dominating factor over the materiality status (Carcello, 2012).
References
Carcello, J 2012, ‘What do investors want from the standard audit report?’, CPA Journal vol.82, no. 1, pp. 7-12
Church, B, Davis, S & McCracken, S 2008, ‘The auditor’s reporting model: A literature overview and research synthesis’, Accounting Horizons vol. 22, no. 1, pp. 69-90.
Davies, T & Crawford, I 2012, Financial accounting, Harlow, England: Pearson.
Elder, J. R, Beasley S. M.& Arens A. A 2010, Auditing and Assurance Services, Person Education, New Jersey: USA
Gay, G & Simnet, R 2015, Auditing and Assurance Services, McGraw Hill
Geoffrey D. B, Joleen K, K. Kelli S & David A. W 2016, ‘Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors’, Accounting Horizons, vol. 30, no. 1, pp. 143-156.
Guerard, J 2013, Introduction to financial forecasting in investment analysis, New York, NY: Springer, pp. 78-81
Heeler, D 2009, Audit Principles, Risk Assessment & Effective Reporting. Pearson Press
Matthew S. E 2015, ‘ Does Internal Audit Function Quality Deter Management Misconduct?’, The Accounting Review, vol. 90, no. 2, pp. 495-527
Roach, L 2010, Auditor Liability: Liability Limitation Agreements, Pearson.
Buy HI6026 Audit - Assurance and Compliance Assignment Answers Online
Talk to our expert to get the help with HI6026 Audit - Assurance and Compliance Assignment Answers to complete your assessment on time and boost your grades now
The main aim/motive of the management assignment help services is to get connect with a greater number of students, and effectively help, and support them in getting completing their assignments the students also get find this a wonderful opportunity where they could effectively learn more about their topics, as the experts also have the best team members with them in which all the members effectively support each other to get complete their diploma assignments. They complete the assessments of the students in an appropriate manner and deliver them back to the students before the due date of the assignment so that the students could timely submit this, and can score higher marks. The experts of the assignment help services at urgenthomework.com are so much skilled, capable, talented, and experienced in their field of programming homework help writing assignments, so, for this, they can effectively write the best economics assignment help services.
