R03 and 04 – GIPS Practice Questions irfanullah.

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1. Samuel Porter works at a GIPS® compliant investment management firm. He constructs a

composite which includes discretionary, fee-paying accounts with value strategies and excludes
growth strategy accounts. Does the composite constructed by Samuel most likely meet the GIPS
criteria?
A. Yes
B. No, because he fails to include growth strategy accounts
C. No, because he fails to account for non-discretionary accounts

2. Which of the following is least likely to be a necessary requirement to claim GIPS®

compliance?
A. GIPS® must be applied on a firm-wide basis.
B. Firm must be defined as an investment firm. It cannot be a subsidiary or division as a
distinct business entity.
C. If a firm changes its organizations, historical composite results cannot be changed.

3. Which of the following are most likely to be accounted for to calculate the aggregate fair value
of the total firm assets on December 31, 2012?
I. Fee-Paying Accounts
II. Non-Fee-Paying Accounts
III. Discretionary Accounts
IV. Non-Discretionary Accounts
A. I and III only
B. I, II, and III only
C. I, II, III and IV.

4. Lucas Investments Inc. claims GIPS compliance. A new law is passed concerning the
presentation of investment performance which conflicts with GIPS standards. Lucas should
most likely:
A. Follows local law and continue to claim GIPS compliance
B. Ignore the local law and continue to claim GIPS compliance
C. Continue to claim GIPS compliance, follow local law, and disclose difference between GIPS
and new law

5. A firm meets the requirement of providing the prospective clients with a compliant presentation
by ensuring that this presentation has been given to the clients within the previous:
A. 6 months
B. 12 months
C. 18 months
.
6. Anita Patel, head of an asset management company, is pushing the proposal to achieve
compliance with CFA Institute Global Investment Performance Standards (GIPS®) at her firm.
She has to present the benefits of GIPS compliance to the Board of Directors at a meeting next
morning. Which of the following is Anita least likely to present as a benefit of GIPS
compliance?
A. Strengthening of internal controls over performance related processes and procedures

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 R03 and 04 – GIPS Practice Questions irfanullah.co

B. Elimination of in-depth due diligence by investor

C. Greater investor confidence on the integrity of performance presentation

7. For the process of claiming and maintaining compliance with the CFA Institute Global
Investment Performance Standards (GIPS®), which of the following is most likely to be held
responsible?
A. Third-party firm verifying the firm’s compliance
B. Firm’s compliance department
C. Firm claiming compliance with GIPS standards

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 R03 and 04 – GIPS Practice Questions irfanullah.co

Solutions:

1. A
A is correct. A composite must include all discretionary, fee-paying accounts with the same
investment mandate or strategy (Standard IV Composites).

2. B
The Global Investment Performance Standards (GIPS®) require that the firm be defined as an
investment firm, subsidiary, or division held out to clients or prospective clients as a distinct
business entity.

3. C
The Global Investment Performance Standards (GIPS®) require that the firm includes fee-
paying as well as non-fee paying discretionary and non-discretionary accounts to calculate the
aggregate fair value of the total firm assets.

4. C
In case the country laws and regulations conflict with the GIPS® standards concerning the
presentation of investment performance, the most appropriate action is to follow local laws,
continue to claim GIPS® compliance, and disclose conflicts in the compliant presentation.

5. B
As long as the prospective client has received the complaint presentation within the previous 12
months, the firm has met its requirement associated with GIPS®.

6. B
While GIPS compliance strengthens internal controls and improves investor confidence on the
integrity and accuracy of performance presentation of the firm, it does not eliminate the need for
in-depth due diligence on the part of the investor. Therefore, B is the correct choice.

7. C
The firm claiming compliance is held responsible for compliance with GIPS standards.

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