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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Archived

Effective: 1 October, 2006 - 30 April, 2013

Categories: Performance Examinations

Source: GIPS Executive Committee

The performance examination procedures state that compliance with the Standards may be checked using a selected sample of the composite’s portfolios. Is there any guidance on what the size of the sample must be to ensure the accuracy of the performance examination?

The size of the sample of portfolios selected from the composite will vary based on the verifier’s judgment when considering the criteria listed in Procedure 1.c of the Guidance Statement on GIPS Performance Examinations. It should be noted that the process of using a selected sample of portfolios is similar to that used in the verification procedures when selecting a sample of the investment firm’s portfolios to check compliance with the GIPS standards.

It is not possible to give a specific number of portfolios or a percentage of portfolios that must be checked per composite. As provided in the Guidance Statement on GIPS Performance Examinations, the verifier’s objective is to accumulate sufficient evidence and perform appropriate procedures such that the risk of not detecting errors in the composite presentation during the examination is mitigated to an acceptably low level of risk.

Not only must the verifier determine the appropriate sample size, but the verifier must also determine if the sample selected is reasonable considering the firm’s specific circumstances. For example, when testing security prices the verifier may determine that testing market values for securities listed on exchanges is relatively straightforward and minimal testing is needed; however, for thinly traded securities, the verifier may determine that additional testing is needed. The verifier must determine what procedures will be performed to determine that the portfolio valuation methodologies are reasonable.