When a Client Engages in Transactions Involving Derivatives, the Auditor

question 12

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 the audit committee 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:

Classical Conditioning

The process of acquiring knowledge by associating a naturally existing stimulus with one from the environment.

Extinction Procedure

A process in behavioral psychology that involves the gradual diminishment of a conditioned response by ceasing to pair the conditioned stimulus with the unconditioned stimulus.

Classical Conditioning

A pairing process in learning where two stimuli are continuously linked; initially, the response is elicited by the second stimulus but over time, the first stimulus can elicit this response by itself.

Beeping Sound

A type of auditory signal or notification often used by devices to attract attention or indicate an alert.