The following covenants are extracted from the indenture of a bond issue. The indenture provides that failure to comply with its terms in any respect automatically advances the due date of the loan to the date of noncompliance (the regular due date is twenty years hence):

1. "The debtor company shall endeavor to 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 \(\$ 100,000\). 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 percent 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 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 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, in his discretion, purchase bonds of this issue."

Required:

a. Indicate the audit procedures you would perform for each covenant.

b. Comment on any disclosure requirements that you believe are necessary.