When a client engages in transactions involving derivatives, the auditor should: Notify the audit committee about the risks involved in derivative transactions. Develop an understanding of the economic substance of each derivative. Confirm with the client's broker whether the derivatives are for trading purposes. Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative.

When a client engages in transactions involving derivatives, the auditor should: Notify the audit committee about the risks involved in derivative transactions. Develop an understanding of the economic substance of each derivative. Confirm with the client's broker whether the derivatives are for trading purposes. Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Audit Procedures

Audit Procedures are methods and techniques performed by the auditor to determine the quality of financial information of clients, thereby expressing an opinion on true & fair view of financial statements and entity position. They are identified and applied at the planning stage of audit after determining audit objectives, scope, approach, and risk assessment.

Question

When a client engages in transactions involving derivatives, the auditor should:
O Notify the audit committee about the risks involved in derivative transactions.
O Develop an understanding of the economic substance of each derivative.
Confirm with the client's broker whether the derivatives are for trading purposes.
O Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative.

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