Effective audit of financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments are used by financial and non-financial entities of all sizes for a variety of purposes. Some entities have large holdings of financial instruments and vast volumes of transactions while other entities may only engage in a few financial instrument transactions. Entities used financial instruments for different purposes, for example: ● Hedging purposes (that is, to change an existing risk profile to which an entity is exposed). ● Trading purposes (for example, to enable an entity to take a risk position to benefit from short term market movements); and ● Investment purposes (for example, to enable an entity to benefit from long term investment returns). The complexity of financial instruments may increase the business risks for entities and risk of material misstatement of financial statements. This