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Forex management

saradhaseshadri (nil) (21 Points)

23 November 2017

Dear Fellow members,

Kindly share the inputs with regard to how to conduct an internal audit of Forex Management.

Thanks in advance,

Saradha A S

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debora M (BUSINESS DEVELOPMENT MANAGER) (1697 Points)
Replied 20 August 2019

A foreign currency business operates in an extremely unpredictable business environment that is dependent on economic and political conditions in different countries. This fluid nature of the business environment complicates the process of managing, monitoring and evaluating a foreign currency business. Nonetheless, the audit procedure provides a framework for investigating and scrutinizing the business's transactions, records and financial disclosures.

Prepare Audit Program

Develop an audit program to outline the terms of engagement, focus areas and date of the exhaustive audit. Spell out the audit procedures for testing and verifying the accuracy of foreign exchange transactions, currency exchange rates and their respective records. Specify the methods and technology applications you will use to examine the firm’s foreign exchange transactions, quality controls and financial disclosures. For example, your audit of a computerized foreign currency firm may involve the use of computer-aided audit techniques and other technologically embedded audit programs. An audit program makes it possible for you to schedule activities, determine risks and identify sensitive areas of the audit.

Inspect Business Records

Check the company’s organizational structure along with the articles of association to authenticate the authority and completeness of its business registration documents. This allows you to establish whether or not the scope of the company’s foreign currency business agrees in principle with its licensed activities. Identify the fiscal year of the business and confirm it with the management. Inspect the records of foreign currency transactions and tally the dates client names and figures to the details in vouchers and source documents. Compare current trends of forex transactions with those of the previous years to determine their reasonableness.

Verify Forex Transactions

Review the processed transactions for foreign exchange operations, investments and financing. Sample the intra-day and daily fluctuations of foreign exchange rates between the dollar and other international currencies. Pay particular attention to cash currency in trade, electronic transactions, foreign currency reserves, debtors’ and creditors’ balances, accruals, prepayments, and fixed assets. Be sure to investigate the risk and hedging controls, such as futures and options, the business employs to overcome the challenges of unpredictable changes between the value of the dollar and international currencies. Scrutinize the materiality of financial disclosures and compare the schedules assets against the firm’s asset registers.

Gather Corroborating Evidence

Gather the material and analytical evidence -- that is, the substantiating information and documentations -- that will form the basis of your recommendations and conclusions at the end of the audit process. For example, the documentations and trends of losses or gains attributable to foreign exchange rate fluctuations would be helpful in corroborating your recommendations of actions to be taken to minimize foreign exchange losses or maximize gains. If you detect financial fraud or manipulations, identify and document the evidence of individuals and financial institutions. This will allow you to back up your recommendations of the actions that should be taken against the individuals or institutions