what's wrong with answer B?
Auditors may need to plan and perform auditing procedures for financial statement assertions about derivatives and hedging activities. Which of the following substantive procedures most clearly tests the completeness assertion about derivatives?
A. Assessing the reasonableness of the use of an option-pricing model.
B. Physically inspecting the derivative contract.
C. Determining whether changes in the fair value of derivatives designated and qualifying as hedging instruments have been reported in earnings or in other comprehensive income.
D. Requesting counterparties to provide information about them, such as whether side agreements have been made.
Answer (D) is correct.
An audit of the completeness assertion addresses whether balances and transactions related to derivatives and hedging activities that should be recorded are recorded. A substantive procedure for the completeness assertion about derivatives and hedging activities is a request to the counterparty to a derivative for information about it, for example, whether an agreement exists to repurchase securities sold or whether side agreements have been made.
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