FRM Part II · FRM Exam Part II · Risk Reporting
A bank tests the accuracy of its aggregated market risk report by reconciling it to the general ledger and source systems. The report shows total exposure of USD 500 million, whereas the sum of source system positions is USD 512 million. Investigation shows USD 9 million is due to a late trade feed and USD 1 million to a mapping error, with the remainder unexplained. What is the unexplained difference, and what does the situation imply?
The unexplained difference is USD 2 million: the USD 12 million gap (512 minus 500) less USD 10 million explained by the late feed and mapping error. This residual shows incomplete reconciliation and must be investigated, since accuracy and integrity of the aggregated report cannot be assured otherwise.
- AUSD 2 million unexplained; reconciliation controls are incomplete and the residual must be investigated before the report is relied uponCorrect
- BUSD 3 million unexplained; the report should be accepted since the explained items exceed the unexplained
- CUSD 12 million unexplained; the late feed and mapping error are not valid reconciling items
- DNo unexplained difference; explained items fully cover the gap
Explanation
Total difference is 512 - 500 = 12. Explained items are 9 + 1 = 10, leaving 2 unexplained. An unexplained residual signals gaps in reconciliation and data lineage, so it should be investigated. The 3 option uses a wrong subtraction, the 12 option ignores explained items, and zero ignores the residual.
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