The following covenants are extracted from the indenture of a bond issue. Although the bond due date is 2016, failure to comply with any covenant automatically advances the due date of the loan to the date of noncompliance:

a. The debtor company shall maintain a working capital ratio of 2 to 1 at all times, and, in any fiscal year following a failure to maintain said ratio, the company shall restrict compensation of officers to a total of \($250,000.\) Officers for this purpose shall include chairman of the board of directors, president, all vice presidents, secretary, and treasurer.

b. The debtor company shall keep all property which is security for this debt insured against loss by fire to the extent of 100 percent of actual value. Policies of insurance constituting this protection shall be filed with the trustee.

c. The debtor company shall pay all taxes legally assessed against property which is security for this debt within the time provided by law for payment without penalty, and shall deposit receipted tax bills or equally acceptable evidence of payment with the trustee.

d. A sinking fund shall be deposited with the trustee by semiannual payments of \($300,000,\) from which the trustee shall, at his or her discretion, purchase bonds of this issue.

Required:

1. Draft audit procedures for each covenant.

2. Comment on any disclosures you think necessary.