Last week I began to conduct a software certification for a TSG software vendor client. My primary contact mentioned that they changed their policy for timing of cash flows, so that inflows default to start-of-day events, while outflows default to end-of-day (though these can be overridden, if necessary). She asked if anything needs to be disclosed, and also, what happens if they recalculate history because of an as-of trade?
First, we would not expect anyone to recalculate history, just because a change is made to the formula, with only one exception: if the method was flawed (we’ve found flawed formulas used at a few firms, who developed their own system, using their own in-house designed formula). Okay, maybe a second example: if an asset manager wants to comply with GIPS(R) (Global Investment Performance Standards), and the one(s) they had been using historically don’t comply with GIPS, so in order to comply, they have to recalculate past performance).
As for disclosures, I’d say that they need to indicate the timing of changes and what formula(s) is(are) used at which time.
This disclosure can also include a statement that in the event of as-of trading history is recalculated, the newest employed formula at that point in time will be used.
Make sense? Have a different view? Chime in!