What is meaning of mismatch of group in accounting

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Daya

Daya (Querist)
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01 November 2024 what is meaning of mismatch of group in accounting.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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01 November 2024 In accounting, a "mismatch of groups" or more commonly referred to as "accounting mismatch" or "asset-liability mismatch," occurs when the financial characteristics or cash flow streams of assets and liabilities being reported or managed do not align or match. This discrepancy can lead to inaccurate financial reporting, volatility in financial statements, or increased risk exposure for the entity.
Common examples of mismatch include:
1. Maturity Mismatch: When the maturity period of assets differs significantly from the maturity period of liabilities. For instance, using short-term liabilities to finance long-term assets.
2. Currency Mismatch: When assets and liabilities are denominated in different currencies, exposing the entity to foreign exchange risk.
3. Interest Rate Mismatch: When the interest rates of assets differ from those of liabilities, making the entity vulnerable to interest rate fluctuations.
4. Risk Mismatch: When the risk profiles of assets and liabilities are not aligned, potentially leading to inadequate provisioning or unexpected losses.