IIA
IIA-CIA-PART2 · Question #25
Due to price risk from the foreign currency purchase of aviation fuel, an airliner has purchased forward contracts to hedge against fluctuations in the exchange rate. When recalculating the exchange…
The correct answer is C. 2 and 3. When recalculating exchange losses from foreign currency purchases, the internal auditor needs to validate the spot exchange rate on the transaction date (2) and the terms of the forward contract (3). These details are crucial to accurately assess the financial impact and…
Conducting the Internal Audit Engagement
Question
Due to price risk from the foreign currency purchase of aviation fuel, an airliner has purchased forward contracts to hedge against fluctuations in the exchange rate. When recalculating the exchange losses from individual purchases of jet fuel, which of the following details does the internal auditor need to validate? 1. The hedge documentation designating the hedge. 2. The spot exchange rate on the transaction date. 3. The terms of the forward contract. 4. The amount of fuel purchased.
Options
- A1 and 2
- B1 and 4
- C2 and 3
- D3 and 4
How the community answered
(27 responses)- A26% (7)
- B7% (2)
- C56% (15)
- D11% (3)
Explanation
When recalculating exchange losses from foreign currency purchases, the internal auditor needs to validate the spot exchange rate on the transaction date (2) and the terms of the forward contract (3). These details are crucial to accurately assess the financial impact and ensure that the hedge is effectively mitigating the exchange rate risk.
Topics
#hedge accounting#forward contracts#exchange rate#foreign currency risk
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