HomeRus Ltd is a retailer of a range of low cost household products and is listed on the ASX. It is highly geared because it borrowed heavily to finance the purchase of shopping centres around Australia. There has been a squeeze on the prices it can charge for its products due to a dip in the economy creating sluggish demand from customers. There has also been a fall in the value of a large part of its property portfolio. The share price of the company has fallen significantly in recent years and a change in senior management last year has done nothing to turn this around. Market analysts continue to forecast poor performance for the company and have suggested that the low share price puts the company at risk of being taken over by one of its competitors.

There have been some approaches by other companies to take over the company, but all negotiations have come to nothing. Some commentators have indicated that the company is pretty sound with good locations and some minor changes will prepare the company for an improving economy. Others, however, have suggested that a buyer coming in at a cheap price could sell off the more valuable properties to make a profit and close the other parts of the business.

No reference has been made to going concern issues in any recent financial report.

Required

Discuss the problems facing HomeRus Ltd and the auditor when considering disclosures around going concern and possible audit opinions.