What's the difference between GIPS verification and performance examination?

Question

AcadiFi · Accepted Answer

GIPS verification and performance examinations are two distinct levels of third-party assurance. Verification is firm-wide; examination is composite-specific. Neither is REQUIRED to claim GIPS compliance, but verification is strongly recommended and expected by sophisticated institutional clients.

**Verification (firm-wide):**
An independent verifier examines whether:
1. The firm has complied with all composite construction requirements of GIPS on a firm-wide basis
2. The firm's processes and procedures are designed to calculate and present performance in compliance with GIPS

Verification does NOT opine on the accuracy of any specific composite's returns — it's a process audit covering the firm's entire compliance framework.

**Performance Examination (composite-specific):**
A deeper review of a SPECIFIC composite, testing:
- Whether the composite has been constructed per GIPS
- Whether returns have been calculated correctly
- Whether required disclosures are complete and accurate

Examination provides higher assurance on the specific composite examined. Typically requested when a composite is used for major institutional RFPs or due diligence.

**Important rule:** A firm cannot claim a composite has been 'examined' without ALSO being verified firm-wide. Verification is the foundation.

Example: Pemberton Global Advisors claims GIPS compliance with:
- Annual firm-wide verification by Brackenbury Verification LLC (independent third party) for all years 2019–2025
- Performance examination of Pemberton Core Fixed Income composite for years 2022–2025 (requested by a prospective public pension client)
- Other composites are verified but not separately examined

Presentations state verification status, and for the examined composite additionally state 'The Pemberton Core Fixed Income composite has been examined for the periods January 1, 2022 through December 31, 2025.'

```mermaid
flowchart TD
  A[GIPS claim] --> B[Verification firm-wide]
  B --> C[Examine all policies]
  B --> D[Optional: Examination]
  D --> E[Specific composite]
  E --> F[Higher assurance]
  B --> G[Can claim verified]
  E --> H[Can claim examined]
```

Verifiers must be independent — they cannot also serve as the firm's auditor in some jurisdictions, and must maintain rotation policies. Fees for verification vary by firm size and complexity, typically $25K–$200K annually.

What's the difference between GIPS verification and performance examination?

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