Today at our European Forum meeting we learned that a Q&A has been issued regarding the Error & Correction Guidance Statement. Recall that this GS includes a requirement to report material errors in a presentation for a period of 12 months; this was a major change to the initial draft. The GIPS 2010 disclosure draft included this provision and it was soundly criticized by the public, and was therefore withdrawn. Consequently, we have a GS which goes into effect in 1 1/2 months and a standard that won't include it.
The Q&A is available on the GIPS website, and reads as follows:
The GIPS Guidance Statement on Error Correction states that firms must disclose in a compliant presentation any changes resulting from a material error for at least 12 months following the correction of the presentation. Does this mean that we have to disclose that a material error occurred to prospective clients that we know have not received the erroneous presentation? Firms are not required to disclose the material error in a compliant presentation that is provided to prospective clients that did not receive the erroneous presentation. However, for a minimum of 12 months following the correction of the presentation, if the firm is not able determine if a particular prospective client has received the materially erroneous presentation, then the prospective client must receive the corrected presentation containing disclosure of the material error. This may result in the preparation of two versions of the corrected compliant presentation to be used for a minimum of 12 months following the correction of the presentation.
This is a major change to what's in the GS and for now it doesn't appear that the GS is going to be revised. Consequently, firms have to be aware of this non-subtle change.
On the GIPS website there's also a list of what's been decided so far, that includes the following as it relates to this matter:
Error Correction – The EC decided to remove the requirement to disclose for 12 months any changes in a compliant presentation resulting from a material error. This requirement was drawn from the Error Correction Guidance Statement which goes into effect on 1 January 2010. The EC stated that it is not the intent to force firms to disclose errors to parties that never received the erroneous presentation. The EC committed to reviewing the Error Correction Guidance Statement as soon as possible and will issue any necessary clarifications. Until such time, firms are reminded that the Error Correction Guidance Statement will become effective in its current form on 1 January 2010.
I'm pleased to see that it isn't the EC's intent to "force firms to disclose errors to parties that never received the erroneous presentation." Unfortunately, with the GS that was published and a Q&A which may not get a lot of attention, there will no doubt be a fair amount of confusion. I would hope that the GS would be withdrawn completely until it can be recrafted and reintroduced, perhaps with public comment.