Barrick Gold, a Canadian public corporation, has operations in six main countries. Barrick produces and sells gold, its primary product, as well as byproducts such as silver and copper. These activities expose Barrick to a variety of market risks, such as changes in commodity prices, foreign-currency exchange rates, and interest rates. Barrick has a risk-management program that seeks to reduce the potentially adverse effects of volatility in these markets on its operating results. It uses derivative instruments to mitigate significant unanticipated earnings and cash flow fluctuations that may arise. These instruments include spot deferred sales contracts, options contracts, interest-rate swaps, and foreign-currency forward exchange contracts. Barrick’s derivatives activities are subject to the management, direction, and control of its finance committee as part of its oversight of Barrick’s investment activities and treasury function. The finance committee, comprising five members of Barrick’s board of directors, including its CEO, approves corporate policy on risk-management objectives, provides guidance on derivative instrument use, reviews internal procedures relating to internal control and valuation of derivative instruments, monitors derivatives activities, and reports to the board. Implementation of these policies is delegated to Barrick’s treasury function.

a. Identify the control risks in Barrick’s derivatives activities and the key controls indicated in the above description. Provide a brief description of specific control procedures that likely are used by Barrick’s treasury function to implement the risk-management policies.
b. Describe audit procedures that could be used to test these controls and substantive tests for derivatives activities at Barrick.

  • CreatedJanuary 09, 2015
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