2015 Mock (Ng Case - GIPS)

Q55

Ng Case Scenario

Ng recommends starting with the definition of the firm. She tells Arnott that how the firm is defined will affect the compliance process and that the standards recommend the firm be defined as broadly as possible. Arnott replies that Rune management has been discussing the firm definition, and they want the definition to include all Rune divisions except the European division, Rune Europe. Rune Europe has its own strategies and management team that are distinct from the rest of Rune. Ng replies that the Rune Europe division should be included in the definition of the firm because the division markets itself as part of Rune Managers.

Solution:

Ng is correct. Because Rune Europe is using the Rune Managers name and marketing materials, the division is not being held out to clients or potential clients as a distinct business entity and so it should be included in the definition of the firm.

My question:

Why Rune Europe should be included in the firm. They have their own management team which means the independent decision-making process?

There are two criteria when deciding whether the different divisions should be considered as one entity or not:

  • Whether their decision making process is independent
  • Whether they are perceived by the clients as one enitiy or not

The subject division markets itself as part of Rune Managers hence will give the client a perception as one entity.

Thanks. What to do when ur point one and two is contradictory?

You have to pass both criteria … i.e. two divisions can only be viewed separate entities if a. they have independent decision making process, and b. they are perceived by the clients as two separate entities… if you fail one of the two then you should still consider them as one entity.

It seems the firm’s boundary is very loose…i,e. I can include anything into firm becasue if they don’t pass one of two criteria.

Then the firm can claim we have so much total asset given #@$ do not meet the criteria so it should be included into firm.

Is that true?

difficult question indeed. I guess the two criteria for decision make sense