Practical Portfolio Performance Measurement and Attribution, Second Edition

Appendix I

Definition of Firm Guidance Statement¹⁵

Revised Effective Date: 1 January 2006 Adoption Date: 13 March 2002 Effective Date: 1 April 2002 Retroactive Application: see “Effective Date” section Public Comment Period: Sep-Dec 2001

GUIDANCE STATEMENT ON DEFINITION OF THE FIRM (REVISED)

Introduction

Three of the most fundamental issues that a firm must consider when becoming compliant with the GIPS^® standards are the definition of the firm, the firm’s definition of discretion, and the firm’s composite definition principles and guidelines. The definition of the firm is the foundation for firm-wide compliance and creates defined boundaries whereby total firm assets can be determined. The firm’s definition of discretion establishes criteria to judge which portfolios should be in a composite to accurately reflect the application of the firm’s investment strategy. Once the firm and discretion have been defined, composites can be constructed based on the strategies implemented by the firm.

The GIPS standards must be applied on a firm-wide basis. As the first step in complying with the Standards, the firm must be defined fairly and appropriately. Compliance with the GIPS standards relies on a clear and consistent definition of the firm. The Standards require that the definition of the firm be disclosed on the composite presentations, and the verification principles require that verifiers determine if the firm is, and has been, appropriately defined.

In addition, the definition ...