Manipulation of Financial Information †Free Samples to Students

Question: Discuss about the Manipulation of Financial Information. Answer: Introduction DIPL is an Australian company and the business of company is printing. This report encompasses the analysis of financial statement of the company to assess the financial condition of the company. DIPL`s case is being studied to analyse the whole information about the changes made by the company. Stewart and Kathy has done the audit for the company and through analysing the information of business it is concluded that some changes were made by the company in context to strategies. Changes were being made by the company in context to the IT system, variations in BOD members, annual meeting discussion etc. DIPL`s financial data is analysed to assess the information about company`s financial position. Financial statement and ratio analysis of company of former three years are as follows: Statement for analytical analysis (presenting calculation of ratios) Computation of ratio analysis Liquidity ratio 2013 2014 2015 Current ratio 1.424851323 1.46655925 1.500731379 0.017751573 Quick ratio 0.82797619 0.944834334 0.847272997 0.007768664 Working capital 16,05,938.0 23,88,900.0 32,03,429.0 0.331580049 Profitability Ratios 2013 2014 2015 Operating Profit Margin 0.100977727 0.089047255 0.08898715 -0.039581594 Net Profit Margin 0.068957968 0.060779639 0.06838972 -0.002746837 Return on Capital Employed 0.4 0.3 0.2 -0.160459244 Return on Equity 0.257834973 0.212484827 0.24261746 -0.019673454 Return on Total assets 0.182458623 0.144075478 0.113667738 -0.125673945 Debt equity ratio Capital structure ratio 2013 2014 2015 Debt- equity 0.413114754 0.474816041 1.134444326 0.582025183 Interest coverage ratio 40.94205904 40.1257067 4.78608308 -0.294367022 Efficiency ratio Efficiency ratio 2013 2014 2015 Receivable turnover ratio 11.08401323 9.2532887 Creditor turnover ratio 12.68542199 11.23585229 Inventory turnover ratio 12.83396414 10.75765974 Assets turnover ratio 2.614942828 2.066946288 Company has made alterations in its business strategies and the financial factors are also influenced through these diversifications(Whittington, 2012). The high turnover of company has resulted as enhancement of working capital by 32, 03,429 AUD and current ratio i.e. 1.77%. Quick ratio portrays that liquidity is managed effectively for managing resources and to meet requirement of small debts. However, profitability ratio depicts falling of profit as the profit volume has fallen in year 2013 by 3.95%; whereas in year 2015, profit rate is being predicted as .88 %. Various ratios are assessed such as- inventory turnover ratio, efficiency ratios, Assets turnover ratio, receivable turnover ratio, and Creditor turnover ratio; to evaluate the company`s performance in perspective to its short term debt in addition to working capital(Whittington, 2012). The analysis of statement could conclude that modifications done in the company`s operations has influenced the ratios. It has complicated the job of the auditors as there is misstatement in the books of accounts. Assessment of risk is mandatory for the DIPL to identify the risk factors. The case study, analysis indicates that inherent risk could be faced by company perspective to auditing compliances. The inherent risk factors are: Intentional Misstatement Inherent risk escalates due to the fraudulent activities pursued by accountant to prepare financial statement in devoid of practicing accounting standards. Information assessed through the case study depicts that there was escalation in the revenue but the profit margin of the company was portrayed in less amount. This aspect may be represented to be safe from being paying tax. As a result, DPIL, indulged itself into fraudulent practices, by showing less profit to save the tax amount. The company might has recorded false transaction to reduce the profit level(Burgon, 2013). Another analysis of case study, depicts that impressive growth and performance of company was portrayed. However there is certainty, that company`s escalated growth was represented to impress the shareholders. Some transactions created the financial information more complex; as, high salary was paid to workers and high rate of depreciation was being charged. This concludes misstatement in accounts and that can be a factor for inherent risk. International and domestic reporting The accounting procedures were not being followed while preparing the financial statements. It is obligatory for business organization to follow the GAAP and IFRS`s principles.; so that international level, requirement of accounting could be followed. This aspect benefits the company to acquire investment from FDIC(Kimmel Weygandt , 2013). Non-compliance of accounting rules can create risk for the company and the business can also be get influenced. Hence it is obligatory for company to follow the general accounting principles while preparing books of accounts. 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 amount of interest over two years is 285.87%. Company took huge loan to sustain its liquidity position and funds. The loan amount was used by the company for payment of its taxes(Prasad, 2012). Revenue of company escalated last year which means it is required by DPIL to make imbursement of high tax return to Australian government. To benign from not paying the tax, higher interest amount was portrayed by DPIL in the financial statement with a plan for paying less tax to Australian government. Debt to equity ratio- The analysis of debt to equity ratio states that there was increment in the ratio of 1.13 in 2015. DPIL`s none of the project required such a massive amount. Consequently this huge amount was shown in financial statement to impress the shareholders and government. Identification of key fraud risk factors Analysis of the financial factors indicates that manipulation was done and the financial information is related with the fraudulent activities( Handsworth, 2012). The auditor also studied the processes of business, such as purchase and inventory and other business operations, like- finance department process, printing process, cash receipts, and e-book revenue process. Information was being taken from the meeting of board of directors and company`s financial statement. The risk inherent factors were also identified by the auditor. Conclusion The report concludes that unethical practices were carried out by the company. The transactions were recorded by the company as per their own interest, to save the tax. Financial statement of the company were also prepared by manipulation of the financial information; so that shareholders could be impressed and they could make more investment in the business. References Fazal, . H., 2011. What is Audit risk?. [Online] Available at: https://pakaccountants.com/what-is-audit-risk/ Handsworth, A., 2012. Risk Management Audit Guide. s.l.: Xlibris Corporation. . Burgon, R., 2013. The Five Step Guide to Risk Assessment. [Online] Available at: https://rospaworkplacesafety.com/2013/01/21/what-is-a-risk-assessment/ [Accessed 22 8 2017]. . F., 2015. Ethics. s.l.:Pearson Education. Kimmel, P. D. Weygandt , J. J., 2013. Accounting Principles. s.l.:s.n. Prasad, M. V. K., 2012. The components of audit risk. [Online] Available at: https://www.thehindubusinessline.com/news/education/the-components-of-audit-risk/article2910361.ece [Accessed 22 8 2017]. Spacey, J., 2016. What is an Inherent Risk?. [Online] Available at: https://simplicable.com/new/inherent-risk[Accessed 22 8 2017]. Whittington, O. R., 2012. Auditing and Attestation. s.l.: John Wiley Sons.