Hi All,
CFAI Topic exam for GIPS - Katherine Ng Q 3:
Relavant para:
The discussion then moves on to a new composite that Rune is constructing. Arnott tells Ng that the marketing department has decided to target domestic Swiss investors and would like to carve out the Swiss portion of international and global accounts for the period of 1 January 2006 through 1 January 2011 and allocate cash to each carved-out segment to create a Swiss franc (CHF) composite. Ng responds that this new composite will comply with the standards, but Rune must disclose the percentage of composite assets that are carve-outs for each annual period end, as well as the policy used to allocate cash to the carved-out segments.
Q:
In the discussion of carve-outs, Ng is least likely correct in her statement regarding the:
A. compliance of the composite.
B. disclosure of the percentage of composite assets.
C. disclosure of the cash allocation policy
Their Answer:
Answer = A For periods after 1 January 2010, carve-outs must include their own cash balance in order to be included in a composite, so a cash allocation policy for periods after 1 January 2010 would not be GIPS compliant
My confusion is that they have allocated cash to the carve-out, so why it is wrong? Also, The % of carve out is not to be reported?