You are engaged in the audit of the accounts and records of an investment company. You find that during the year the company has purchased from a bank the mortgage notes of several individuals. Some of the notes were purchased at face value, some at premium, and others at a small discount. The notes call for equal monthly payments to cover interest and principal. By agreement, each mortgagor makes additional fixed monthly payments to cover property taxes and insurance. The seller of the mortgage notes continues to service them, remitting monthly to your clients the payments received on account of principal and interest and retaining the payments for taxes and insurance in escrow until the tax bills and insurance bills are received for payment. 

1. State the documents which should be on hand in support of your client's investment. 

2. Outline the steps you would take in the audit of the transactions, covering both principal and income features.