LOS t: Explain the purpose, scope, and process of verification.

Q1. The purpose of third-party verification:

A)   is required by CFA Institute but not the SEC.

B)   is required by CFA Institute and the Securities and Exchange Commission (SEC).

C)   may give a GIPS compliant firm a competitive advantage by making the claim to GIPS compliance more credible.

Q2. As part of the verification process of a firm claiming GIPS compliance, the third party doing the verification asks for a list and description of the firm’s composites and a list of all portfolios under the firm’s management. Which of these requests is/are actually part of the preparation process?

A)   A list of all portfolios under management but not a list and description of composites.

B)   Both asking for a list and description of composites and a list of all portfolios under management.

C)   A list and description of composites but not a list of all portfolios under management.

Q3. A firm that is considering GIPS compliance is considering verification too. The firm can seek to have a detailed Performance Examination:

A)   on select composites only after the whole firm has been verified.

B)   only on all composites as part of the firm wide verification.

C)   on select composites as part of the firm wide verification.

LOS t: Explain the purpose, scope, and process of verification. fficeffice" />

Q1. The purpose of third-party verification:

A)   is required by CFA Institute but not the SEC.

B)   is required by CFA Institute and the Securities and Exchange Commission (SEC).

C)   may give a GIPS compliant firm a competitive advantage by making the claim to GIPS compliance more credible.

Correct answer is C)

As of now, the only purpose of verification is to give the GIPS compliant firm a competitive edge. Prospective clients will have more confidence in the claim of GIPS compliance.

Q2. As part of the verification process of a firm claiming GIPS compliance, the third party doing the verification asks for a list and description of the firm’s composites and a list of all portfolios under the firm’s management. Which of these requests is/are actually part of the preparation process?

A)   A list of all portfolios under management but not a list and description of composites.

B)   Both asking for a list and description of composites and a list of all portfolios under management.

C)   A list and description of composites but not a list of all portfolios under management.

Correct answer is B)

The verification includes both of these requests as well as many others such as a sample of performance presentations and marketing materials and all investment management agreements or contracts.

Q3. A firm that is considering GIPS compliance is considering verification too. The firm can seek to have a detailed Performance Examination:

A)   on select composites only after the whole firm has been verified.

B)   only on all composites as part of the firm wide verification.

C)   on select composites as part of the firm wide verification.

Correct answer is A)

Section III.C: After the firm has been verified, as evidenced by a verification report, it may additionally choose to have a detailed Performance Examination conducted on one or more specific composites.