Dharma Pharmaceuticals Pty Ltd (DPPL) imports a number of pharmaceutical products. In order to hedge its foreign...

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Accounting

Dharma Pharmaceuticals Pty Ltd (DPPL) imports a number ofpharmaceutical products. In order to
hedge its foreign currency transactions, DPPL entered into anumber of forward rate agreements this
year. Prior to this time DPPL had had little exposure toderivative instruments, but a series of bad
experiences resulting from fluctuating exchange rates convincedthe company that a hedging strategy
was necessary. During planning for the audit of DPPL, thecompany's hedging arrangements were
identified as inherently risky and increased testing was carriedout in this area. A number of small
errors were noted in accounting for hedge transactions, butthere did not appear to be any material
errors and as such no adjustments were made. A review of theaudit file suggests that the errors noted
were a result of inexperience and poor controls in the area.While all of the errors were brought to the
attention of the treasurer, who is responsible for the company'shedging strategy, no further action has
been taken to date.
REQUIRED:
Explain what further action the auditor should take inresponse to the errors and control weaknesses
identified. Justify your response.

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Answer Inspecting is an autonomous examination work built up inside an association to look at and assess its exercises as a support of the association The target of evaluating is thusly to help individuals from the association in the successful release of their obligations In this situation the reviewer ought to See Answer

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Dharma Pharmaceuticals Pty Ltd (DPPL) imports a number ofpharmaceutical products. In order tohedge its foreign currency transactions, DPPL entered into anumber of forward rate agreements thisyear. Prior to this time DPPL had had little exposure toderivative instruments, but a series of badexperiences resulting from fluctuating exchange rates convincedthe company that a hedging strategywas necessary. During planning for the audit of DPPL, thecompany's hedging arrangements wereidentified as inherently risky and increased testing was carriedout in this area. A number of smallerrors were noted in accounting for hedge transactions, butthere did not appear to be any materialerrors and as such no adjustments were made. A review of theaudit file suggests that the errors notedwere a result of inexperience and poor controls in the area.While all of the errors were brought to theattention of the treasurer, who is responsible for the company'shedging strategy, no further action hasbeen taken to date.REQUIRED:Explain what further action the auditor should take inresponse to the errors and control weaknessesidentified. Justify your response.