I’m reading Exchange Rate Regimes: Choices and Consequences and in chapter 4 the authors distinguish between de jure and de facto exchange rate regimes: that is, a country may state what their regime is (de jure), but in reality do something different from it (de facto).
Let’s briefly distinguish these terms, since they’re not in common usage:
- de jure: by right; according to law
- de facto: in fact; in reality.
When we have a GIPS rules communicated either in a glossary entry or a sample, can we, in fact, think of them as being de jure requirements, or would it be better to think of them as de facto?
As a verifier, when we review a firm’s policies and materials, and discover a problem, we cite chapter and verse in order to give credence to my position. Is it acceptable to cite an example? I don’t believe so. Examples have, in my way of thinking, never been used to say “this is what we expect,” but rather “this is how you might want to do it.” And so, if the “requirement” to include references to risk in a composite description are de facto, then one would still expect a compliant firm to adhere to it, but not based on official doctrine. Does this make sense?
I believe I understand the GIPS Executive Committee’s challenge. They believe risk needs to be in the composite description; however, given the negative responses to their proposal in the earlier disclosure draft and the acknowledged risks involved in such a requirement (see my earlier comments on this issue), what are they to do? And so, rather than make this a de jure requirement, they imply that they expect to see it via an example, which then turns it into a de facto one. And by doing so, they reduce the risks that a de jure requirement might involve. One could argue that such a practice of including risk would be deemed “best practice.” Gaining clarity and buy-in is the challenge that awaits us.
Note: both definitions come from www.Dictionary.com.