DPA50153: AUDIT 2 (TURIYA BERHAD)

 

PART A :



PART B :



Part C: Finding and Conclusions

Based on the significant changes observed in the financial ratios between 2023 and 2024, you are required to:

 

1. Verify the potential impact of these variations on the company's business risk, going concern status and any relevant issue.

 

 

A)Business Risks :

• Turiya Berhad’s net profit decreased to RM3,296,171 from RM4,084,468 in the previous year. The decrease of net profit is about 19.3%. Therefore, lower profitability may affect the company’s ability to meet its operational costs, service debt or even the invest in growth.

 

• Turiya Berhad’s current liabilities increased by 29.06%. This can be referred to as shown in the financial statements, where there is an increase in current liabilities in 2024 amount RM7,338,891 than the previous year’s (2023) which is RM 5,686,266. Increment in current liabilities may lead to several business risks such as cash flow pressure, increases the financial risks and interest rate exposure.

 

Turiya Berhad’s inventories turnover decreased by 12.74%. This also can be shown where the 2024’s inventories turnover is 3.56, meanwhile the 2023’s inventories turnover was slightly higher than the current year. Decrease in inventories turnover may causes several business risks such as :

     i)Obsolescence Risk: Longer inventory holding periods increase the likelihood of products becoming obsolete or outdated, leading to potential write-offs and losses.

     ii) Cash Flow Issues: Slower inventory turnover ties up cash in unsold products, reducing available funds for operational needs and investments.


B) Going Concern Status:

• Decrease in Liquidity Ratio : Turiya Berhad’s current liquidity ratio has decreased from 2.21 (in 2023) to 2.13 (in 2024), a decline in liquidity ratios can raise concerns about a company's going concern status, which refers to its ability to continue operating for the foreseeable future. For example :

i)           Increased Financial Risk: A declining liquidity ratio (like the current or quick ratio) suggests that the company may struggle to meet short-term obligations, heightening the risk of insolvency.

ii)        Going Concern Disclosure: If liquidity ratios decline significantly, auditors may require a "going concern" note in financial statements, which can affect perceptions and market value.

 

Decrease in Total Borrowings : As stated in the financial statements, total borrowings of Turiya Berhad’s decreased from RM 33,100,282 (2023) to RM 31,420,374 (2024). A decrease in total borrowings can generally be seen as a positive sign for a company, but it can also raise some going concern issues, particularly if the decrease is due to specific circumstances.

 

C) Relevant issues :

i) Revenue Implications : When there is decline or significant drop in the trade purchases (as stated in the calculation above), it will causes or indicates the declining sales or reduced production capacity.

ii) Improved   Company’s Financial Stability: Lower gearing (as stated in the calculation above), may leads to reduced financial risks as the company (Turiya Berhad) is relying less on debt financing.

 

 

 


2. Prepare the steps would you take to corroborate the information obtained from this

analytical procedure with other audit evidence, such as documentation supporting

management's assertions and external sources of information.

 

Turiya Berhad’s auditors should follow these steps:

A. Review Documentation:

• Analyze the audit records pertaining to the analytical process. This covers all

work documents, notes, and calculations.

• Verify that the process was carried out accurately and reliably.

 

B. Assess Relevance and Reliability:

• Assess the applicability of the data acquired. Does it directly connect to the goals

of the audit?

• Take the source's credibility into account. In general, external data is more trustworthy than internal data

 

C. External Confirmations:

External confirmations from third-party can also be useful for better performance of Turiya Berhad company. For example:

i) Payable confirmations: Verify the balances owed to suppliers.

ii)Receivable confirmations: Verify the balances owed by customers.

iii)Verify transactions and balances using bank confirmations.

 

D. External Sources:

Auditors can use data from outside sources that are not affiliated with the entity:

i)Reports from analysts: Examine market trends and standards.

ii)Comparable information about rivals: Make use of benchmarking information.

 


 

3. Explain additional audit procedures would you recommend to understand the

underlying reasons behind these variations.

 

Auditors  of Turiya Berhad can perform these additional audit procedures:

A )Substantive Analytical Procedures:

i)            Auditors may examine the current year and the previous years’s financial statistics. For example, auditors can examine the incomes, costs, and profitability in order to find any notable variations.

Auditors also may compare the actual performance to the anticipated outcomes in order to plan or estimate.

Last but not least, auditors also may check the figures and hypotheses, in response to auditors' predictions.

 

B) Detailed transaction testing:

Auditors of Turiya Berhad can perform substantive testing on a sample of transactions related to the variances to assess their accuracy and validity. For Example :

i)Revenue: Review sales agreements, billing records, and guidelines for revenue recognition.

ii) Expenses: Examine the supporting documents and expense reports from the financial report.

iii)Fixed assets: Examine asset registrations and evaluate techniques for depreciation.

 

C) External Confirmations:

Auditors of Turiya Berhad may obtain the external confirmations from the third-party, for example :

i)          Customers : Auditors need to verify if there is any unpaid invoices.

ii)        Providers : Alike customers, auditors need to verify the unpaid invoices from the providers.

iii)       Banks: For banks, auditors need to verify the loan amounts and cash balances.

 

 

 

 

 

D) Do industry and market research:

Last but not least, the additional audit procedures that auditors should follow is to do some research on industry and market for better performance. For example :

i)Examine the outside variables that might influence Turiya Berhad's performance.

ii)Examine the competitors, conditions and the industry trends.

 

 

In conclusion, the significant changes observed in the financial ratios between 2023 and 2024 have variaties of implications. Some can lead to better performance, and some may causes bad influence to the financial performance of the company. Afterall, auditors should take the better steps to prevent any mistakes while doing the audit process.






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