Over the last couple of weeks, I have been teaching our prep courses for the CIPM exams. While teaching the Principles Level course, I came across a sentence that caused some confusion:

“The Modified IRR method is another estimation approach acceptable prior to 1 January 2011.”

This sentence appears in the Study Session II document called “Overview of GIPS Principles,” at the bottom of the page numbered as 22.

The sentence caused me to stop because it seemed (to me) to imply that the Modified Internal Rate of Return is not an acceptable estimation approach for time-weighted return calculations for firms that claim compliance with the Global Investment Performance Standards (GIPS). I know, of course, that this is not the case. GIPS provision 2.A.2.b requires if compliant firms are not revaluing the portfolio on the date of every cash flow, then they must use a method that adjusts for daily-weighted cash flows. Both Principles Level and Expert Level candidates should be aware of this provision. Additionally, Expert Level candidates should also be aware that the Guidance Statement on Calculation Methodology points out that the Modified BAI method is acceptable – this is essentially another name for the Modified IRR method.

I asked the CIPM Prep Providers program about the sentence in question, and they explained to me that the sentence does not actually say that the Modified IRR method is not acceptable after January 1, 2011 – it merely states that it is acceptable before that date! In re-reading the sentence, I agreed that what they said is true… and that I read too much into the sentence.

Having said that, I suggested that the sentence could possibly be misconstrued by many, and they did indicate that they will point this out in the errata. So, another good reason for candidates to periodically check the curriculum errata, as clarifications may be made there in addition to corrections!