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

Question

Quizplus · Accepted Answer

Developing an understanding of the economic substance of each derivative is important as it helps the auditor evaluate the risks associated with these transactions. This allows the auditor to assess whether the transactions are being used for legitimate business purposes or for speculative trading purposes. It also helps to ensure that the financial statements properly reflect the nature of these transactions. The other options may be relevant, but they are not the best or most appropriate choices in this context.

When a Client Engages in Transactions Involving Derivatives, the Auditor