information that the report is for a performance examination and conducted by the verifier in accordance with the Guidance Statement.
If a verifier concludes that the composite presentation does not satisfy the GIPS standards, the verifier must issue a statement to the investment management firm clarifying the reason(s) why it was not possible to provide a performance examination report.
REQUIRED PROCEDURES Verifiers must comply with certain procedures when issuing a performance examination report. The following is a highlight of these procedures:
Pre-Performance Examination Procedures. A verifier that did not perform the firm-wide verification must have knowledge of the firm, the GIPS standards, the applicable country- specific laws and regulations and the investment management firm’s policies used for the composite when establishing and maintaining compliance during the period examined.2
Sample Portfolio Selection. A verifier may check compliance with the GIPS standards by using a selected sample of the composite’s portfolios. The verifier conducting the performance examination must determine the appropriate sample size, and reasonableness of the sample selected.
Performance Examination Procedures. A verifier should examine:
Cash flows, Income and Expenses, and Portfolio Trade Processing to determine whether each is recorded in the proper portfolios, at the correct amounts, and on a timely basis that is consistent with established policies. Procedures should be considered and performed at a level that satisfies the verifier that each of the above items is supported by documentation and the methods used to account for each item are appropriately and consistently applied.
Portfolio Valuation to determine whether the beginning- and end-of-performance measurements period valuations of security positions are valued correctly and on the correct dates.
Performance Measurement Calculation to determine that portfolio and composite returns have been correctly calculated.
Composite Presentation Information and Disclosures to determine whether the presentation includes all the information and disclosures required by the GIPS standards. Investment management firms must determine that the presentation also complies with applicable regulatory requirements.
Maintenance of Records. A verifier must maintain sufficient information to support the performance examination report.
Management Representation Letter. The verifier must obtain a representation letter from the firm confirming that the composite being examined is in compliance with the GIPS standards, in relation to the following areas:
the composite construction; (2) the composite calculations; and (3) the composite presentation and preparation. This letter should also confirm any other specific representations made to the verifier during the examination.3
CONCLUSION The Guidance Statement on GIPS Performance Examinations can be found on the CFA Institute website at www.cfainstitute.org/centre. The Guidance Statement includes a sample report that is compliant with the Guidance Statement provisions. Firms that engage in a performance examination of a specific composite that covers performance for periods ended December 31, 2006 must apply the new Guidance Statement. The Guidance Statement requires no retroactive application.
Michael S. Caccese* 617.261.3133 firstname.lastname@example.org
Amber D. Baker 617.951.9076 email@example.com
A firm that performed a firm-wide verification is already required to meet this requirement.
The investment management firm is responsible for fully disclosing any information to the verifier that might affect the work of the verifier performing the performance examination.
Michael Caccese is a partner in the Boston office of Kirkpatrick & Lockhart Nicholson Graham LLP. He works extensively with investment firms on compliance issues, including all of the CFA Institute standards. He previously was the General Counsel to AIMR and was responsible for overseeing the development of AIMR-PPS, GIPS and other standards governing the investment man- agement profession and investment firms. Amber D. Baker is an associate with K&LNG in the Boston office.
Kirkpatrick & Lockhart Nicholson Graham LLP