Accounting for Financial Instruments - Final Audit Report ... - EDC

IntroductionFinancial instruments (FIs) are broadly defined as any contract that gives rise to a financial asset of oneentity and a financial liability or equity instrument of another entity. EDC’s balance sheet includessignificant (FIs) such as loan assets, marketable securities, debt, and derivatives. Accordingly, weperformed an audit of the process to establish and report the values of significant FIs included in EDC’sfinancial statements. This involved reviewing the process for establishing and reporting fair value. FVrepresents an estimation of the amount for which an asset could be exchanged, or liability settled betweenknowledgeable, willing parties.Audit Objectives & ScopeThe overall objective of this audit was to evaluate the design and operating effectiveness of the controls inplace to ensure that:Valuation techniques are correctly applied to each type of financial instrument;Models used in the determination of fair values are independently reviewed and subject to aformal change management process;Data inputs into models are both accurate and complete; and,Presentation and disclosure of FIs in EDC’s financial statements is in compliance with IFRS.Audit fieldwork was performed from November 2012 to January 2013.Internal Audit OpinionIn our opinion the process surrounding the recording, valuation and presentation of Financial Instrumentsin EDC’s financial statements is Well Controlled 1 . Controls are designed and operating effectively toensure valuations are reasonable and reporting is in compliance with relevant International FinancialReporting Standards (IFRS). Moderate 2 issues were noted and are described in the following section.1Our standard audit opinions are as follows:- Strong Controls: Key controls are effectively designed and operating as intended. Best in class internal controls exist. Objectivesof the audited process are most likely to be achieved.- Well Controlled: Key controls are effectively designed and operating as intended. Objectives of the audited process are likely tobe achieved.- Opportunities Exist to Improve Controls: One or more key controls do not exist, are not designed properly or are not operatingas intended. Objectives of the process may not be achieved. The financial and/or reputation impact to the audited process ismore than inconsequential. Timely action is required.- Not Controlled: Multiple key controls do not exist, are not designed properly or are not operating as intended. Objectives of theprocess are unlikely to be achieved. The financial and/or reputation impact to the audited process is material. Action must followimmediately.2The ratings of our audit findings are as follows:− Major: a key control does not exist, is poorly designed or is not operating as intended and the financial and/or reputation risk ismore than inconsequential. The process objective to which the control relates is unlikely to be achieved. Corrective action isneeded to ensure controls are cost effective and/or process objectives are achieved.− Moderate: a key control does not exist, is poorly designed or is not operating as intended and the financial and/or reputationrisk to the process is more than inconsequential. However, a compensating control exists. Corrective action is needed to avoidsole reliance on compensating controls and/or ensure controls are cost effective.− Minor: a weakness in the design and/or operation of a non-key process control. Ability to achieve process objectives is unlikelyto be impacted. Corrective action is suggested to ensure controls are cost effective.Accounting for Financial Instruments 3