Error correction, made perhaps TOO easy!

As of January 1, 2010, any firm claiming compliance with the GIPS(R) standards (Global Investment Performance Standards) must have a documented error correction policy. The policy that the firm comes up with should cover all aspects of their compliant presentations, both numeric (covered in section I.5 of the standards; e.g., returns) and non-numeric (i.e., disclosures, covered in section I.4; e.g., composite descriptions). Many firms fail to address the latter, and often only address returns when it comes to numeric errors, even though all numeric values (required and recommended (that appear); e.g., assets under management) need to be noted, too.

As for the non-numeric disclosures, what needs to be said? Well, some firms have taken the easy route and simply stated that any errors in this category will be treated as "non material." I have to object to this because materiality should include anything, found to be in error and then corrected, that might cause the recipient of the previous non-corrected version to possibly draw different conclusions. And surely there are required disclosures that fall into this category. For example, the composite description. Granted, a spelling error is probably non-material, but if the wording has to be changed, might that not constitute a material change? It would be very difficult to craft rules that could somehow distinguish between material and non-, when it comes to disclosures, (i.e., to bifurcate your rules into "material" and "non-material" for each disclosure) other than for spelling errors.

And so, I think firms have two choices:

1. Review every required (and recommended, if they appear in the presentation) disclosure to identify which ones would fall under the "material" category, and list these (you could state that the balance are non-material), or
2. Indicate that any error, other than spelling to disclosures will be deemed material.

Is the second option onerous? Well, it could be, so #1 would be perhaps better. But if your diligent in ensuring that your wording is correct, you'll never encounter an error, and so won't have to worry about it.

To me, these are the only choices available to you. But, if you have other ideas, please let me know!