Question

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

A) Request additional documentation and details on derivative transactions
B) Assess the client's risk management policies and procedures
C) Evaluate the appropriateness of accounting treatment for derivatives
D) All of the above

Answer 1

When a client engages in transactions involving derivatives, the auditor should request additional documentation and details, assess the client's risk management policies, and evaluate the appropriateness of accounting treatment for derivatives.

Step-by-step explanation:

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

1. Request additional documentation and details on derivative transactions: The auditor should verify the accuracy and completeness of the information provided by the client by requesting additional supporting documents and transaction details.
2. Assess the client's risk management policies and procedures: The auditor should evaluate the client's risk management practices to ensure that they are adequate and effective in managing the risks associated with derivative transactions.
3. Evaluate the appropriateness of accounting treatment for derivatives: The auditor should review the client's accounting treatment for derivatives to determine if it is in accordance with the relevant accounting standards and guidelines.

Therefore, the correct answer is D) All of the above.