Ensuring that policy objectives specifying the use of derivatives are clearly articulated and documented. Derivatives will continue to be an important business tool for managing an entity's risk management activities. Their significance is expected to increase with the development of new products and techniques that refine and improve the ability to achieve risk management and other objectives. Adequate understanding of the nature and risks of derivatives is essential to using these tools prudently. Improved awareness of how specific instruments behave under varying market conditions can only produce better informed management decision making.
Effective control is critical to any well-managed derivative operation.
Control systems serve as the infrastructure for accomplishing entity-wide objectives. Applying the COSO Framework can help ensure that the use of derivatives is carefully integrated into the overall organizational control system and that unforeseen and undesirable outcomes are minimized.