Questions Requiring Analysis 10-34 (Static) [LO 10-9, 10-10]

During the current year, the management of Hanover Incorporated entered into a futures contract to hedge the price of silver that will be needed for next years production. The contract, which is held by Hanovers commodity broker, is marketable and exchanged on the CME Globex Exchange.

Required:

a. Describe the types of controls that should be established by a company that engages in derivative trading.

b. List the substantive procedures that the auditors would use to audit this derivative.

please explain the answer so i can learn from it