Effective Product Control

CHAPTER 12Profit and Loss Adjustments

a&L adjustments, but due to system deficiencies and human error, product control is required to intervene to ensure the bank's financials are reported accurately. In this chapter, we will explore how to control P&L adjustments effectively.

The Need for P&L Adjustments

Adjustments to the P&L are required when the GL or P&L reporting system is reporting an incorrect P&L. These amounts will typically remain as open entries on the balance sheet until the issue, which is causing the adjustment, is rectified.

As P&L adjustments weaken the control framework, the management of P&L adjustments is important. P&L adjustments need to be independently validated, recorded, reported and escalated on a timely basis, as losing sight or control of an adjustment can lead to quite serious consequences, including significant trading losses (e.g., the UBS rogue trading event). In Table 12.1 is a list of some of the common incidences which create the need for adjustments.

Table 12.1 Items giving rise to P&L adjustments

P&L adjustment category	Cause
	System	Human
Trade input
– Trade input error	X
– Trade missed system end of day cut	X
– Trade booking incomplete	X
Marking
– Stale price	X
– Incorrect price updated	X
– Price update missed end of day cut	X
System feed
– RMS system has not fed P&L reporting system/GL	X
– RMS system feed is incomplete	X
– Residual Funding mechanism hasn't run correctly	X
– FX Revaluation ...