sume that on January 1, 2005, a 15-year old firm with no Global Investment Performance Standards (GIPS) compliant performance history wishes to claim compliance with the GIPS standards. Which of the following accurately reflects the appropriate action for the firm to take?
A) Comply with GIPS for the year beginning January 1, 2004, and report four additional years of performance history (five total) and disclose why the earlier years are not GIPS compliant. B) Comply with the GIPS standards for the 5-year period January 1, 2000, through December 31, 2004, and report five additional years of non-GIPS-compliant performance and disclosure of why the performance in the earlier years is not GIPS compliant. C) Comply with GIPS for the year beginning January 1, 2004, and report nine additional years of performance history (ten total) and disclose why the earlier years are not GIPS compliant.
C, and you need to change the dates to 2005, and I think you don’t have to describe the non-compliant periods because you aren’t presenting them (which could only be done before 2000 anyhow).
Your answer: C was incorrect. The correct answer was B) Comply with the GIPS standards for the 5-year period January 1, 2000, through December 31, 2004, and report five additional years of non-GIPS-compliant performance and disclosure of why the performance in the earlier years is not GIPS compliant.
In order to claim GIPS compliance, a firm must present at least five years of annual investment performance that is compliant with GIPS. If a firm or composite is less than five years old, the performance since the inception of the firm or composite must be presented. A firm may link a non-GIPS-compliant performance record to their 5-year compliant history as long as only GIPS-compliant performance is presented for periods after January 1, 2000, and the firm discloses the periods of non-compliance with an explanation of why the presentation is not GIPS compliant (Standard 4.A.15 and 5.A.1.a).
Mesa Asset Management has claimed compliance with the Global Investment Performance Standards (GIPS®) for many years and it is now January 1, 2011. Robert Flay, managing director for Mesa wants to go beyond merely complying with the standards and wants to incorporate all of the GIPS recommendations, particularly those dealing with presentation and reporting. Flay asks two of his performance analysts, Catherine Cora and Luigi Batali for suggestions as to how Mesa can incorporate the recommendations.
Cora: “Mesa is permitted to link our noncompliant annual performance data from 1996-1999 to our GIPS compliant data, as long as we meet the disclosure requirements. GIPS reporting recommendations suggest that we eliminate all non-compliant data after presenting the required 5 years of compliant historical performance.” Batali: “Including a measure of the standard deviation of composite returns is extra information that will provide prospective clients with information regarding the fluctuation of composite returns over time.”
After listening to their statements, Flay should:
A) disagree with both Cora, but agree with Batali. B) agree with Cora, but disagree with Batali. C) disagree with both Cora and Batali.
Flay should disagree with both Cora and Batali. According to Standard 5.A.2. For periods beginning on or after January 1, 2011, firms must present for each annual period:
