Uncertainties of Risk Management

Question: Discuss about the Uncertainties of Risk Management. Answer: Introduction: Implementing the analytical method of financial reporting for DIPL can assist in developing the procedure of audit. The analytical procedure of audit reporting is regarded as the specific guidelines that mandatorily require to be adhered during the audit procedure. Additionally, this helps the appraiser to maintain the cost of audit at a appropriate degree to avoid conflict of interest with clients (Schmidt et al., 2016). Analytical method of financial reporting of DIPL refers to the method of distribution of relative information from the financial statement of the organization. Such process of assessment can be executed by making use of variety of methods. Nevertheless, by implementing the analytical method of financial reporting, several accountants together with financial analyst can provide vital information to the management in decision-making. Analytical method of financial reporting provides assistance in arriving at the common reference point. This facilitates comparison of financial report for different time period or in addition with different companies as well (William et al., 2016). The appraiser can consider the varied elements of items stated in the financial report, additionally they can check their way of reporting. For instance, the method of registering items namely net assets or net liabilities together with owners equity in the financial reporting of the organization and the evaluation of the digression from the usual. Benchmarking can be considered as the analytical method of reporting which can be put into use for evaluation of the audit plan. Differences of actual financial results from the benchmark assist in identifying the variation and this helps in identifying the reason behind the identified variance. To determine the financial health, ratio analysis is regarded as the appropriate method of facilitating comparison between the financial results and evaluation of audit plan. Description of outcomes influencing the audit decision: The outcome of planning decision concerning audit is influenced by the outcomes of the analytical approach undertaken for allocation of relevant information from the financial reports. For instance, outcomes of the ratio analysis such as current ratio of the DIPL is computed which stood 1.42 for the year 2013, 1.46 in 2014 and 1.5 for the year 2015. Profitability ratio represents the profit margin that is computed to be 0.068 for the year 2013 with 0.60 for 2014 and 0.06 for the year 2015. The profitability ratio can disclose the condition of net income that is earned by the organization in comparison to the net sales of the DIPL (Arens et al., 2016). This helps the appraiser in understanding the whether the expenditure are lower or higher and whether the management of the organization have the necessity of curtailing the budget simultaneously. The favourable and the unfavourable outcomes of the ratio can be ascertained for audit evaluation in order to determine the soundness of the financial health and overall financial position of the DIPL. Solvency ratio is computed for DIPL for the year 2013 which stood 0.60, 0.44 for the year 2014 and 0.21 for the year 2015 that assist in understanding the desirable and undesirable trends in the financial position of the organization. Similarly comparison of the ratio over the period of five years can assist in understanding the whether the cash flow of the company is sufficient to meet both the short term and long term liabilities of DIPL (Messier et al., 2014). The appraiser can understand the relative position of the organization over the range of three years and evaluate the factor that resulted in favourable as well as unfavourable conditions of DIPL. Recognition of inherent risk factors that originate from the business functions of DIPL: The numerous significant elements of audit have represented several instances of material misstatement in a financial reporting of an organization. Both systematic and unsystematic risk have been taken into consideration from monetary misstatements together with financial declaration of the corporation. The numerous types of risk identified is based on the financial and non-financial elements (Coetzee et al., 2015). The appraiser should consider in detecting the risk. The identified risk might be associated with numerous sorts of risk related to omission and diversification of errors with the diversified character of the errors in business functions of DIPL. With reference to the existing situation, a large number of transactions are particularly omitted by the accountants or management of the DIPL corporations. This can directed in a sequential method for numerous types of inconsistency especially with the effective planning together with the sales activities. In addition to this, financial reporting forms the basis of the evaluation that has been revealed for the achieving the profit from the revenue derived from the sales. The present study of DIPL have been able demonstrate that the implementation of IT procedure has brought forward particular issues (Boone et al., 2017). It is understood that DIPL does not have sufficient workforce to handle the execution method and the carrying out the installation process. The issues furthermore highlighted the issue relating to the installation and execution of the reconciliation along with the testing of the new arrangement at the end of the year. Numerous kinds of considerations have been used in recording the cash receipts that have been consistent with the financial professionals of the organization with inappropriate handling of the inherent risk (Fung, 2014). The employees have been able to follow an appropriate sequences of recording the accounts receivable. Risk and the way it can impact risk of material misstatement of financial report: There are different types of risk that have been considered in accordance with the susceptibility and specific considerations have been paid on the material misstatement; Excessive pressure on employees and management: Excess amount of work pressure on the members of staff of the corporation has been the major contributor of poor bookkeeping (Baker et al., 2014). There are certain attributes that has been considered especially those that are related with the probability of encountering the issues of poor liquidity, poor operating outcomes and numerous types of issues relating to cash flow. Risk of errors and inappropriate misrepresentation: The identified risk remains to be the matter of intricacy and the errors relating to risk have been simultaneously misrepresented. Integrity of the overall management: As evident, the entire management of DIPL has been essentially lacking the necessary integrity and the anticipation to prepare for the reputational loss in the business community. Extraordinary weight on the administration: On several occasions, managements have been found to be under extraordinary pressure that has resulted in material misstatement of the financial reports (Hayes et al., 2014). Nature of business: DIPL leads the expansion of main economic competitive situations. The above mentioned facts is further noticed to have impacted numerous kinds of considerations that has been observed to be4 associated with the inherent risk of business entity for the analysis of audit planning. Loss of Asset The reflected risk has been observed to result in significant amount of loss related to the fraud of asset. Dissatisfaction among the workers has been further noticed where employees engage in fraudulent activity. In addition to this, expectations from the investors to report on the financial results or particularly based on the administration to consider the specific performance based targets that results in high risk of fraud (Ye Simunic, 2013). This has further been observed based on the declaration of particular financial outcomes in avoiding the guarantees stated. Incidence of fraud for workforce engagement The numerous kinds of fraud risk identified has been linked with the functions of the DIPL. Some have the identified risk have originated from the excess pressure of the board in acquiring and maintaining the new system of accounting. The excess amount of pressure has been carried by the employees in installing the process of new systems of IT that may results in accounting fraud (Pizzini et al., 2014). This goes on to the extent of revealing that employees that the employees might get involve in the fraudulent activity and handle the process of reconciliation with subsequent misstatement material. The case study has paid emphasis on the incidence of inappropriate handling of the procedure and the improper allocation of certain kinds of transactions by the end of the year. This ultimately results in losses associated with the material misstatement and risk related to fraud. Fraud relating to financial reporting The financial reporting fraud is recognized as another form of component risk. At the time of excessive pressure it has been witnessed that the outside financers can make declaration on the specific announcements on the financial management so that it can qualify for the acquisition of debt (Lenz Hahn, 2015). The identified risk is further observed to have based on the improper financial announcements. The monetary position of the DIPL has stated that numerous considerations for revenue has represented an increasing trend from the year of 2013 to 2015. Along with this, the total asset and current assets of DIPL have also increased on the considerable amount. In addition to this, gross profit has been increasing at an increasing amount until the period of 2013 to 2015 (Ege, 2014). The various kinds of other considerations that need to be studied and has been emphasising on the amount of loan that amounted to $7.5 million. This is particularly the loan agreement that has maintained th e current ratio of 1.5 and along with this the debt equity of the organization has been witnessed to be lower than 1. This requirement has been able to relate to the with numerous types of considerations that is made from the inappropriate reflection of the financial position. The company has failed in numerous types of reflections that is related with the maintenance of the definite benchmark that can make the company not eligible for the finance of the BDO finance. Unsuitable average cost As per the current case study it has been found that the valuation of different kinds of raw material inventory at a specified average cost was not considered as sufficient since the current cost was not suitable. This is because the cost of paper was more than the average cost (Vinnari Skrbk, 2014). 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