Verifier independence is not a new topic within the GIPS Standards. In 2005, the GIPS Executive Committee released the Guidance Statement on Verifier Independence, which laid the foundation for verifier independence as well as outlined the minimum guidelines for verification firms and clients. The newly-proposed Guidance Statement on Verifier Independence is being issued with the purpose of clarifying and strengthening the existing guidance surrounding verifier independence.
Verifier Independence Clarified
The proposed Guidance Statement stresses that independence is the responsibility of the verification firm as well as the verification client. The assessment of independence is initially performed at the commencement of an engagement acknowledged by both parties through an engagement letter. However, it should be an ongoing process throughout the engagement, affirmed by both the verification firm and verification client upon completion of the engagement via the verification report and representation letter, respectively. Any new information potentially impacting the initial assessment of independence should be reviewed and documented by both the verification firm and verification client, along with the conclusions reached.
With respect to the guiding principal that verification firms should not step into a management role on behalf of a verification client or assume any responsibility in any management function, the proposed Guidance Statement defines “management functions” as tasks and responsibilities that are relate to the GIPS-compliance process. Some examples given within the proposed Guidance Statement include:
- Assigning portfolios to composites;
- Determining firm definition;
- Determining discretion definition and/or status;
- Creating composite criteria;
- Establishing or modifying policies and procedures;
- Calculating portfolio- and composite-level returns; and
- Preparing compliant presentations
What the Proposed Guidance Requires
In an attempt to strengthen the independence assessment made by the verification firm, the proposed Guidance Statement will require verifiers to create and document policies and procedures surrounding the independence assessment at both the firm and the employee level. This is a change from prior guidance. Although verifiers were always responsible to assess independence, this proposed Guidance Statement now requires all verifiers to formally document their policies and procedures for addressing independence. The proposed Guidance Statement also encourages verification clients to follow suit and document policies and procedures that address verifier independence.
Your Opinion Matters
The proposed Guidance Statement on Verifier Independence will be open for public comment until October 26, 2017. We encourage all firms, including both verification firms and verification clients, to weigh in on the guidance statement as all will be subject to the provisions on verifier independence. The draft of the guidance statement can be found at: https://www.gipsstandards.org/standards/Documents/Guidance/exposure_draft_public_comment_verifier_independence.pdf.
We would be pleased to provide further information related to this subject. For more information, contact Thomas A. Peters, Director, Audit & Accounting at firstname.lastname@example.org or Joshua E. Kramer, Senior Accountant, Audit & Accounting at email@example.com.
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