I am unable to understand what difference “five years” makes in the following requirement.
Firms must present a minimum of five years of GIPS-compliant history or since inception if less than five years. After presenting at least five years of compliant history, the firm must add annual performance each year going forward, up to ten years, at a minimum.
It seems to me that you have to present EITHER
0 to 10 years of performance = age of firm, if the firm is less than 10 years old OR
10 years if the firm is older than 10 years; at a minimum.
For example, a 7-year old firm has to present 7 years of GIPS-compliant history. Is that correct?
Do the words “history” and “annual performance” mean different things?
after presenting 7 years - they need to add a year at a time till 10 years.
now in the 11th year - they may present everything from year 1 onwards, or now they could cut down and show 10 years from Year 2 thro’ 11 (both inclusive).
CPK, I got that. But the deadline/significance of “five years” escapes me. Consider firm age and minimum number of years of performance presented, using the GIPS wording:
After reaching 10 years of GIPS presentation , you can drop the earliest ( presumably bad , because you’re dropping it ) and add a new year to keep the tally 10.
You cannot suddenly reduce from 10 to lower , you have to keep it 10. If you’re in existence for more than 5 years , you got to start with 5 and start adding 1 year until 10 . Then you can drop 1 and add 1.
Its not rocket science . Its just to deter would be manipulators from getting rid of bad history and looking pretty
How do you figure that? If they weren’t GIPS-compliant in 2007-2011, how can they present GIPS-compliant performance? Or is it that they have to have all the data from 2007-2011 that would have made them GIPS-compliant and but they just didn’t claim compliance in 2007-2011?
Also, look at my table from an earlier post. 5 years doesn’t seem to have any special meaning.
Sorry if I am being obtuse but maybe someone with an accounting background can immediately spot what CFAI is trying to say here, I can’t.
The table above is not dropping any history. It’s saying that if the firm has been in existence for, say, 3 years, they have to present 3 years of history; if in existence for 7 years then present 7 years and so on. Five years holds no significance.
Firm is in existence for 7 years . They decide to claim GIPS compliance . They have 7 years of history , of which last 5 years are GIPS compliant (documented) . They have to show 5 years of compliance ( presumably 7years ago and 6 years ago they had a poor performance , ok to drop years back 7 and 6 ) . Then add 1 year etc.
Firm is in existence for 3 years . They decide to claim GIPS compliance . They have 3 years of history , of which 3 years are GIPS compliant (documented) . They have to show 3 years of compliance. Then add 1 year etc.
Firm is in existence 20 years , they were in GIPS compliance 15 years ago. Then for some reason ( maybe cost or new CEO that is not a CFA ) they stopped claiming GIPs compliance 3 years ago ( bad years in years 8 and 9 years ago ) . They want to get back into GIPS compliance. Well , they have to report 10 years of compliance history, starting 10 years ago , sorry years 8 and 9 years ago need to be in.
Intention is to prevent firms from manipulating the system to look pretty to institutions who regard GIPS compliance as very important.
With so many example, it has started making sense - GIPS -compliant data does not mean claiming GIPS compliance. In CPK’s example, a company that would have needed data from 2002 (till 2011) does not have to do it, the minimum is from 2007. Same for your example #1.
In your example #3 too well, if the company stopped claiming compliance 3 years ago then they may not have GIPS-compliant data for the past 2 years. I assume you are factoring in that they do have GIPS-compliant data and stopped claiming compliance just to bamboozle prospective clients (for example) because that allowed them to drop the data for years 8 and 9.
Thank you for taking the time for answering what must have seemed like a simple trivial question.
1recho, thanks so much for asking this question. I was also confused by the 5 vs. 10 year requirement. Based on the examples above, it sounds as if it depends on if the firm is claiming compliance for the first time.
If a firm decides to claim compliance (and have never been GIPS compliant), then they need to present 5 years of compliant data. Then, in order to remain in compliance, they must add each year going forward until they have up to 10 years of data presented. Then in year 11, they would present years 2-11 of results.
Bumping this old but still relevant string. As I understand, movingonup’s reply summarize it, however with my addition, if I misunderstood it, kindly correct me: "If a firm decides to claim compliance (and have never been GIPS compliant), then they need to present 5 years of compliant data [EDIT: or from inception if firm exist less than 5 years]. Then, in order to remain in compliance, they must add each year going forward until they have up to 10 years of data presented. Then in year 11, they would present years 2-11 of results. "