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Critically evaluate the risk-based approach to external audit with particular reference to the audit of Home Retail Group plc.


You should give exs of how you might collect evidence and assess the degree of business risk(obtaining an understanding of the entity and its environment and assessing the risks of a material statement) in the 2011 audit of the company and factors affecting the company’s ‘control environment’. 

Task 2

Identify those features of Home Retail Group plc’s results fir 2009-2011 which might indicate to you as the external auditor that the company was facing going concern problems.


Use ratio to assess areas of audit risk analytically

Ratio exs:

Operating Profit margin ( % ), Operating Profit/ Total assets  ( % ), Return on equity  (%) EPS  (p.), Interest cover ( times ), Gearing ratio(%), Current ratio (: 1 ), Stock holding(days ) Cash operating effic.(%), Free cash flow (£M.)                     

Task 3

Identify any qualitative factors or information in the annual reports and accounts for Home Retail Group plc for 2011, including the report if the audit committee, that you as the external auditor would consider that might suggest that the company would be able to continue in business for the foreseeable future.

Note: Report of the audit committee e.g Movement on share,

Task 4

Briefly outline the requirements of the UK version of ISA 700/ 750/ 706 and discuss the factors which would influence you as the external auditor in forming an opinion on the financial statements of Home Retail Group plc for 2011.


Indicate briefly the form that your opinion might take including any emphasis of matters paragraph that you may consider making in relation to the appropriateness of the going concern basis.

Links for Home Retail Group plc:

Pages to take into consideration:

p54 Consolidated income statement

p56 consolidated balance sheet

p58 consolidated statement of cash flows

p59 analysis of net cash/(debt)

P53 Independent auditors’ report to the members of Home Retail Group plc

P40,41,42 Corporate governance report continued

Home Retail Group News:

Home Retail: world’s worst share buy-back:

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M91797

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