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FRM Part II · FRM Exam Part II · Risk Identification

An operational risk analyst builds an internal loss database. A fraud event is discovered in 2024, but the fraudulent activity occurred in 2022 and the loss was accounted for in 2023 after a provision. For categorizing and analysing the event, which dates should the database ideally capture?

The database should capture occurrence, discovery and accounting dates separately. Each serves a distinct purpose: occurrence for frequency modelling, discovery for assessing detection delays, and accounting for reconciling to financial records. Storing just one date would lose analytical value and weaken reconciliation.

  1. AOnly the accounting date, since it ties to the financial statements
  2. BOnly the discovery date, because that is when management became aware
  3. COccurrence, discovery and accounting dates, each recorded separatelyCorrect
  4. DOnly the occurrence date, because the other dates do not affect analysis

Explanation

Good loss data collection records the date of occurrence, date of discovery and date of accounting. They support different uses: frequency modelling by occurrence, detection-lag analysis, and reconciliation to the general ledger. Keeping only one date loses information.

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