Reconciliation
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What is Reconciliation?
1) Reconciliation is a process that compares two sets of
records to check that figures are in agreement with each
other.
2) Purpose of Reconciliation –
a) The process of reconciliation ensures the accuracy
and validity of financial information.
b) Also, a proper reconciliation process ensures that
unauthorized changes have not occurred to
transactions during processing.
When does Reconciliation take place?
All the reconciliation activities take place at T + 1 level.
Scopes of Reconciliation
1) Transaction Reconciliation
2) Position Reconciliation
1) Transaction Reconciliation –
a) The purpose of transaction level reconciliation is to ensure that
each of the transactions (trade, dividend, corporate action, etc.)
have been recorded correctly (price, shares, cash, income, etc.).
b) Transaction Reconciliation occurs when:
i) Buy & sell of trade
ii) The company declares income
iii) Proceeds from corporate action events
iv) Any other cash income or expenses
v) Any other contribution or withdrawal from the client
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2) Position Reconciliation –
a) Position Reconciliation is verifying positions as of any
particular date against external parties like custodians,
counterparties, etc.
b) The reconciliation process ensures each trade is verified and
validated accurately, hence ensuring the right impact on the
P&L and Balance sheet.
3) Position Reconciliation occurs for:
a) Currency level balance
b) Opening & closing balance for multiple transactions,
Closing Balance = Opening Balance + Net of all
transactions
What are the Types of Reconciliation?
a) Cash Reconciliation
b) Stock Reconciliation
c) Market Value Reconciliation
d) Pricing Reconciliation
a) Cash Reconciliation: Reconciliation of transactions is
one of the critical operations in every financial
institution; effective management of this activity is
essential to the success of an organization. The main
objective of performing reconciliation is to identify
incompatibilities in data and achieve resolution.
Cash Reconciliation is verifying balances as of any
particular date against external parties. The
reconciliation process ensures each transaction is
verified and validated accurately, ensuring the right
impact on the P&L and Balance sheet.
b) Position Reconciliation: Position Reconciliation verifies positions as of any particular
date against external parties like custodians, counterparties, etc. The reconciliation
process ensures each trade is verified and validated accurately, hence ensuring the
right impact on the P&L and Balance sheet.
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When is Reconciliation performed?
Reconciliation must be performed on a regular and continuous basis on all balance sheet
accounts impacting Cash and Stock as a way of ensuring the integrity of financial records.
This helps uncover:
a) Omissions,
b) Duplication,
c) Theft,
d) Fraudulent transactions
Self-Notes
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