The auditor is auditing the Inguish Company, which has a bond indenture, dated March 26, 2001, with the Last International Bank of Chicago that contains the following covenants in paragraphs E through I.

• Par. E—Maintain at least a 2.5:1 current ratio:

i. At the end of each quarter 

ii. At fiscal year-end 

• Par. F—Deposit $250,000 into the bond sinking fund by January 1 of each year until the bonds mature.

• Par. G—Restrict dividend payments to no more than 50 percent of net income each year.

• Par. H—Make the stated interest payments by the interest dates.

• Par. I—The company shall conform to all pollution standards.

Required:

a. Under what circumstances is it appropriate for an auditor to report on the compliance of a client with contractual agreements or regulatory requirements?

b. Which of these covenants would it be appropriate to cover in the compliance report to the bond trustee?

c. Give reasons for excluding any of the covenants from the report.