What You Will Learn
1. Introduction to Investment and Derivative Auditing

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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
-- VAR
-- 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

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

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

11. Case Study: Auditing the Investment and Derivative Environment

12. Summary
- key controls
- red flags