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:

Universal Facial Expression

Facial expressions that are recognized across various cultures as conveying the same emotional states.

Cultural Constraint

Limitations or influences on behavior and thinking imposed by societal norms and values.

Lie Smiles

Facial expressions that attempt to appear genuine but are actually fabricated to conceal true feelings, often detectable through subtle inconsistencies.

True Smiles

Genuine smiles that involve the contraction of muscles around the eyes and mouth, reflecting actual happiness or pleasure.