Understanding and Auditing Investments and Derivatives

MIS Training Institute (MISTI)
Training overview
3 days

Course description

Understanding and Auditing Investments and Derivatives

Auditing investments and derivatives can be challenging in today's markets.

Participants will:

  • Acquire a basic understanding of investment and derivative terminology, the core processes used in the risk management, the strategies entered into by portfolio managers / investment managers / traders and back-office operations.
  • They will explore front-office, middle-office and back-office activities, control objectives, red flags and internal control best practices.
  • Learn to differentiate between derivative hedging and speculating activity.
  • Gain an understanding of the new financial regulation changes being introduced into the market over the coming years.
  • Identify the specific risks common to investment and derivative strategies and cover how to minimize those risks with a strong internal control environment.
  • Participate in class discussions, case studies and practical exercises, to learn how to develop meaningful audit programs to use in one of the most material areas an auditor can review.

Who should attend?

This course is suitable for:

  • Internal and External Auditors
  • Risk Managers and Middle Managers
  • Investment Auditors and Accountants
  • Regulators and Bank Supervisors

Training Content

Course content

Introduction to Investment and Derivative Auditing​

Understanding the Investment Environment
• introduction to the investment process
• understanding the short-term market: T-Bills, commercial paper, banker’s acceptance, CDs, Eurodollars, agencies.
• reviewing major securities in capital markets
• fixed income securities: Treasuries, corporate bonds, zero-coupon bonds, asset-backed, mortgage-backed securities, and municipals.
• equities: preferred, common, equity-linked notes

Understanding the Derivative Environment
• the importance of auditing derivatives
• what’s going wrong
• derivative debacles of the past
• hedging vs. speculation
• introduction to derivative risk management
• what’s going right
• earnings stability
• price certainty

The Forward and Futures Contracts
• defining the forward contract
• why forwards rather than futures
• forward example
• defining the futures contract
• why futures rather than forwards
• characteristics of exchange-traded contracts
• the mechanics of margin
• using futures to hedge fair market value
• financial future examples

The Option Market
• fundamentals of options
• option terminology
• analyzing the option premium
• types of financial options: exchange-traded, caps and floors, swaptions
• strategic use of options

The Swap Market
• swap mechanics
• swap terminology
• comparative advantage swap examples
• foreign currency hedging with swaps
• advantages to hedgers: swaps vs. futures
• understanding financial swaps examples
• the mechanics of swaptions

The Investment Infrastructure: Best Practices 
• back office and reporting
• back office systems and controls
• understanding the pitfalls of investment reporting
• reporting class exercise
• the roles of the front office
• learning the portfolio management process
• investing class exercise
• auditing broker activity
• auditing soft-dollar activity
• reviewing the functions of the middle office
• model verifications
• price verifications

Controlling Investment and Derivative Risks
• management risk
• responsibilities
• policies and procedures
• segregation of duties: front office, middle office, back office
• internal controls and audit considerations
• market risk
• model risk
• price risk
• liquidity risk
• internal controls and audit considerations
• credit/counterparty risk
• master agreements
• credit enhancements
• credit metrics
• internal controls and audit considerations
• legal risk
• netting enforceability
• foreign counterparties
• internal controls and audit considerations
• operational risk: internal controls and audit considerations

Accounting for Derivatives 
• FAS 133 concepts
• understanding the “accounting concept of hedging”
• hedge criteria qualifications
• reviewing the documentation standards

Establishing a Comprehensive Compliance Function: The Current State of the New Financial Regulation​

Case Study: Auditing the Investment and Derivative Environment​

• key controls
• red flags


The cost of this course is $2495 per participant. Request information to learn more!

Certification / Credits

Completion of this course is worth 24 CPE Credits



MIS Training Institute (MISTI)

With offices in London and Boston, MISTI is the global leader in IT audit, audit and information security training. Founded in 1978, MISTI has gained experience through training more than 200,000 delegates across five continents.  MISTI has made it their...

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MIS Training Institute (MISTI)

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Average rating 4.7

Based on 3 reviews

Matt D.
I thought the course was good, however the material was more focused on the understanding aspect and not so much on the auditing. I would have liked some practical examples on ways you can use audit procedures on investment and derivatives.
Joanne, G, First Republic Bank
Informative, thorough, topics were being tied to actual situations/experiences. Overall, met my objectives and exceeded expectations.
Megan, G, AAM
Overview of basic investment and derivative products/concepts and the risks/controls for which Internal Audit should look.
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