Answer the following concerning the compliance report for the Inguish Company:

a. Outline the basic elements of a compliance report.

b. Write the paragraph containing negative assurance if

1. All of the covenants have been met

2. All of the covenants have been met except that the company paid out dividends of $400,000 with net income of only $700,000.

The indenture states that if there are any violations of the covenants other than timely interest payments, these are to be reported by the management of the company to the trustee within 45 days of the fiscal year end, such report is to include an explanation of the violation, why it happened, and what management plans to do about it. Management has properly reported this violation, which was caused by the declaration of dividends based on preliminary estimates on net income of $850,000.The decrease in audited net income was the result of an unexpected downturn in the stock market during the last two weeks of the year that created an unrealized loss on decline in the market value of the company’s current marketable equity securities.

c. What are the audit implications when the client violates one or more of the bond covenants?