Q & A Database
The GIPS Standards Q&A database contains questions and answers (Q&As) on various searchable topics that provide additional interpretation on an issue. Q&As are considered to be authoritative guidance and must be followed in order to claim compliance with the GIPS standards.
Content from prior Q&As was included in the GIPS Standards Handbook as much as possible and many Q&As were archived. Change the Status drop-down filter to "Archived" to see the archived Q&As.
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CurrentEffective: 1 January, 2020Categories: Calculation MethodologySource: 2020 GIPS Standards
How should litigation income be accounted for? Should it affect performance?
The GIPS standards do not specifically address how to handle the receipt of funds due to a litigation or bankruptcy settlement in return calculations. It would seem most appropriate that the settlement proceeds would be accounted for when the firm becomes aware of the timing and amount of funds expected to be received by the portfolio. This might be upon receipt of the funds. The funds received would increase the value of the portfolio, would not be treated as a cash flow, and would be reflected in the portfolio’s return. This assumes that the portfolio was under the firm’s management at the time the litigation event occurred. If the litigation event occurred before the firm began managing the portfolio the litigation income should be reflected as a cash flow because the firm is not entitled to the benefit of the receipt of the income.
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