GIPS 2010 ... when do we have to comply? II (Further clarification)

In Friday's post I mentioned how there is confusion regarding when firms need to comply with the Global Investment Performance Standards (GIPS(R)) 2010 edition. I mentioned how you aren't obligated to comply until you begin to report on your 2011 numbers. It's important to be aware of the "bigger picture" and the context in which I was making this statement: I was referring to the compliant firm's presentations, not the "firm," per se. Granted, the FIRM is compliant with GIPS, not presentations. And what a firm does (as far as valuations, return calculations, etc.) are reflected in their composites, presentations, policies, etc., which are evaluated during verifications. We see a firm's compliance through their presentations and policies. I was speaking in the context of a client who is preparing for their 2010 verification: she wanted to know if their presentations needed to reflect the changes that went into effect this year and the answer is "no," since I will be reviewing their 2010 records. If I were to be looking at any 2011 numbers, then "yes," they WOULD have to comply with the new requirements.

Since the new rules went into effect on January 1, 2011, GIPS compliant firms must now comply with them, though the evidence of compliance may not be revealed until they begin to issue their composite presentations with the new wording and disclosures.

A colleague pointed out that the post might be "adding to the confusion. Firms that comply with the 2010 edition of the GIPS standards must comply as of 1 January 2011.  To indicate that firms look to the date which they report performance is extremely misleading.  If a firm compiles their compliant presentation annually and the firm waits until the beginning of 2012, they will be out of compliance.  The 2010 edition requires, among other things, that firms use a fair value methodology to value investments at month end and at the time of all large cash flows.  If firms are not adhering to this beginning 1 January 2011, they are going to be in a very uncomfortable position later."

I agree. If you don't bother to familiarize yourself with the new requirements until late 2011 or in early 2012, you may have a rude awakening to learn that you were supposed to be doing certain things throughout the year that you perhaps failed to do. Compliant firms should be adhering to the rules today, though they don't have to make adjustments to their presentations until they begin to reflect 2011 returns. And so, even though a your firm's presentations don't need to reflect the changes until you begin to report on your 2011 numbers, you want to make sure you're comply with the rules, such as valuation. You also want to make sure your policies are adjusted to reflect the new rules.

I'm sorry if what I previously wrote was misleading, as my purpose was to reduce the confusion, not add to it, and I hope this clarifies the requirements. If you have any questions, please send me a note.