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Case Study on Double Ink Printers Ltd (DIPL)

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Case Study on Double Ink Printers Ltd (DIPL)

Introduction

In the era of competition materiality and transparency in financial statements stands as the main tool for maintaining long-term consistency in the market. Auditors in this respect accurately examine the materiality and transparency in financial statements and provide opinions that help in ensuring compliance with accounting standards. In the case study, Double Ink Printers Ltd (DIPL) needs to focus on the risk factors that clearly clarify the need for expert audit help for reducing material misstatements. In the case study, earnings base and the revenue from E Books are provided for assisting the audit managers that helps in the smooth conduction of audit planning process. 

Question 1: Assessing the need for expert audit service in DIPL

 

In the case study of DIPL, it is seen that the average print out time is Two days in small orders whereas in case of big orders the turnout time of five to 10 days for large orders. Background information on purchase inventory requirements shows that the company purchase inventory materials (50%) from Australia and 50% from Asian countries. It is further seen that raw materials of the company are measured on average basis. Work in progress is calculated by taking cost of materials, labour and by apportioning manufacturing overhead on normal capacity.

The process of future planning related to smooth functioning of the business auditors plays an important role. According to William et al. (2016, p. 24), ratio analysis is the tool that helps in accessing the current position where experts like, auditors give opinion regarding the consistency and transparency of financial statements. Liquidity analysis of DIPL shows that although the current ratio has increased from 1.42 to 1.5 in the years 2015, 2016 and 2017 still there is a case of material misstatement in the quick ratio. Case study further reveals that in the board meetings it is seen that average valuation of inventory is no longer suitable for estimation of inventory. Adoption of incorrect procedure for inventory calculation has caused fluctuations in quick ratio thereby leading to risk exposure (Knechel, and Salterio, 2016, p. 14). The analysis shows that quick ratio has reported fluctuation from 0.82 to 0.944 and again 0.84. This fluctuation clearly shows that DIPL requires expert audit advice for detecting the risk factors required for reducing this inventory misstatement (Refer to appendix 1)

According to Palepu et al. (2013, p. 15), reduction of material misstatements helps in disclosing information with accuracy that further attracts investors for further investment. Auditors check the growth prospects and give expert opinion regarding the future growth prospects of DIPL. Case study further shows that preliminary testing of transactions has reported discrepancy in recording certain transactions. Report submitted by Andy shows that certain transactions have not been allocated to correct period, which has hampered the profitability position of DIPL. Therefore, based on the case study report it is seen that the response time for larger orders is much higher, therefore, expert advice in reducing the response time can boost the performance of DIPL. Incorrect estimation of inventory and incorrect recording of transactions reduces the efficiency of the company.

As per the case study, Andy, the IT manager has identified that due to non-availability of experts and excess pressure the team of employees has recorded transactions incorrectly in accounting software. This has given rise to material misstatement in statements. IT experts are to be hired who along with the IT manager Andy can guide the employees for conducting accurate testing and reconciliation of transactions in IT system. Therefore, by taking the help of IT expert the misstatements due to inaccuracy in recording transactions in IT system can be reduced easily. Auditors may not be able to detect this error thereby by hiring IT software expert not only correct recording of transactions can be ensured but also handling of Patch software becomes easier for DIPL. According to Hribar et al. (2014, p. 506), experts ensures synchronisation between old software systems with the new software systems thereby reducing the chance of misstatement due to incorrect recording of transaction.

Experts dealing with the valuation of equipment and property can help in performing accurate valuation of fixed assets. According to the case study in the board meetings, it is seen that accurate estimation of life for the printing press is not done accurately by DIPL. As per the New CEO William Jackson printing press originally has life for 30 years as seen in other companies but DIPL has recorded life of printing press as 20 years. Accurate estimation of asset life helps in calculation of salvage value. Accurate estimation of salvage value helps in calculating accurate depreciation expense. Expert help of asset valuation team is required by DIPL so that material misstatement due to incorrect recording of expenses can be reduced. The valuation expert can accurately estimate the life of printing press thereby assisting the auditors in detecting material misstatement due to increased depreciation expense.

According to the case study, expert help of auditors not only ensures the compliance of financial statements in accordance GAAP and IFRS but also helps in identifying the material misstatements found in the reports. According to Griffith et al. (2015, p. 49), auditors check the transparency and authenticity of financial statements that help in making accurate disclosure of financial reports. Audit planning depends on the risk factors and the changes in growth that reduces the efficiency in audit process. Therefore, incorrect disclosure of information reduces the popularity of DIPL thereby reducing the investment opportunities. In Audit planning enhancing efficiency and profitability is kept on the priority list. Achievement of targeted levels of efficiency depends on customers and investors therefore by taking expert help DIPL can rectify the issues related to material misstatements. This can help DIPL to boost the performance levels and can simplify the process of audit planning.

Therefore, DIPL must opt for expert service of auditors for conducting accurate and transparent Audit.  Therefore, for checking the future growth prospects and risk detection can be done by taking expert help of auditors. DIPL can include Expert advice of auditors for making the audit planning process more authentic and opt for the company thereby making the audit of 2017 more effective.

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