When a Client Engages in Transactions Involving Derivatives, the Auditor

question 1020

Multiple Choice

When a client engages in transactions involving derivatives, the auditor should:

• A) Develop an understanding of the economic substance of each derivative.
• B) Confirm with the client's broker whether the derivatives are for trading purposes.
• C) Notify those charged with governance about the risks involved in derivative transactions.
• D) Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative.

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Definitions:

Voucher Register

A record that keeps track of all issued vouchers, which are documents authorizing payments, and their current status.

NSF Check

An NSF check is a check that cannot be processed due to insufficient funds in the account it's drawn on.

Personal Deposit

Funds that an individual places in a bank account for safekeeping, which can earn interest over time depending on the type of account.

Debit Memorandum

A document issued by a buyer to a seller indicating a reduction in the amount owed, typically due to returned goods or an overcharge.