The auditor is auditing the Ingush Company, which has a bond indenture, dated March 26, 2005, with
Question:
The auditor is auditing the Ingush Company, which has a bond indenture, dated March 26, 2005, 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% 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.
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Step by Step Answer:
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston