The following covenants are extracted from the indenture of a bond issue. Failure to comply with its
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Give any audit steps or reporting requirements you believe should be taken or recognized in connection with each of the following from the indenture:
1. The debtor company shall Endeavour to maintain a working capital ratio of 2:1 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 $500,000. Officers for this purpose shall include chairman of the board of directors, president, all vice presidents, secretary, and treasurer.
2. The debtor company shall keep all property which is security for this debt insured against loss by fire to the extent of 100% of its actual value. Policies of insurance comprising this protection shall be filed with the trustee.
3. The debtor company shall pay all taxes legally assessed against property that 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 of same with the trustee.
4. A sinking fund shall be deposited with the trustee by semiannual payments of $300,000, from which the trustee shall, at his discretion, purchase bonds of this issue.
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Auditing An International Approach
ISBN: 978-0071051415
6th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley
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