GIPS: Disclosure

Disclosure is simply providing additional information that helps aid in understanding of presented information. The GIPS require that certain additional information be provided, such as the policies of the firms, but doesn't require that firms include every detail. Rather, firms must focus on the things that help in understanding or that are significant in some way. What do you think might be something that would help clients understand the performance report that should be disclosed?

No. Knowing how many employees work in the firm would probably not help the clients understand how performance was calculated.

No. Although it might be interesting to see how much money you could make if you became a CEO in the future, this probably isn't going to help the clients' understanding.

Yes. Knowing how the firm computes returns would definitely aid in understanding the performance report, and since policies are a required disclosure, it definitely should be included.

Firms that are following the GIPS must actually claim compliance in their disclosures. Even if a firm is not verified, it still has to claim compliance. The latest edition of the GIPS includes a compliance statement that firms can use in their disclosures. The statement allows firms to indicate whether or not they are verified. Why do you think it matters if a firm discloses whether or not it is verified?

Not quite. The basic statement of compliance tells the clients that the firm is in compliance. Adding to the statement that the firm is verified increases credibility. Remember, verification is an added, optional step performed by an independent third party that further assures clients that the firm follows GIPS.

Absolutely. Firms that are verified should use the revised compliance statement that indicates whether they have been verified or not. Adding to the statement that the firm is verified increases credibility. Remember, verification is an added, optional step performed by an independent third party that further assures clients that the firm follows GIPS.

Assume one firm is using leverage for a particular composite strategy and another firm does not use leverage. Leverage is a specific practice that definitely needs to be considered when reading a report. Which of the firms do you think needs to discuss leverage as a disclosure in its report?

Not quite. Think about it: performance reports would be really long if firms had to disclose all the practices they do _not_ use.

Yes. Firms are only required to disclose special practices that are being used or unusual conditions that are relevant to the understanding of the report.

In summary: [[summary]]

No, think about this some more. If firms were required to report on the practices they don't use, it would make for some very long performance reports.

Sometimes, firms have special circumstances or use specific practices that are not common. The Standards require that firms disclose any of these uncommon circumstances to help clients understand how circumstances may impact their reports. If firms do not have any of these unusual circumstances, they are not required to tell readers that they haven't used certain practices. They need only disclose the practices they have used.

The number of employees

The CEO’s salary

The firm's policy on computing returns

Disclosing verification tells the customers that the firm is in compliance with GIPS

Disclosing verification tells the clients that the firm's compliance with GIPS has been reviewed by an independent third party

Both firms should discuss the use of leverage and indicate whether they use it or not

Only the firm using leverage should disclose that it is using leverage

Only the firm that is not using leverage should disclose that it does not use leverage

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