A NEW MARKET FOR ATTESTATION SERVICES - THE PERFORMANCE PRESENTATION STANDARDS OF THE ASSOCIATION FOR INVESTMENT MANAGEMENT AND RESEARCH

The recent development of the Performance Presentation Standards by th e Association for Investment Management and Research (AIMR) provides a setting for a descriptive study of the demand for and supply of a new type of attestation service. This service involves providing attestat ion that investment managers are reporting their investment results in compliance with reporting criteria developed by a professional body ( the AIMR) other than a sanctioned accounting standards setting body. T he Performance Presentation Standards (PPS) are a set of guiding princ iples intended to promote full disclosure and unbiased presentation by investment managers in reporting their investment results (AIMR 1993, ix). Fund sponsors, primarily of pension funds, use presentations of historical performance by investment managers to select investment man agers. Based upon assertions by investment industry observers, we use a framework which the PPS and the attestation of PPS compliance are vi ewed as a response by the AIMR to the overstatement of returns by inve stment managers. Evidence consistent with overstatement of advertised returns by investment managers is presented. Adherence to the PPS by i nvestment managers is currently voluntary and attestation of PPS compl iance is recommended by AIMR, although not mandated. Results of a surv ey of investment managers provide evidence that attestation of PPS com pliance is purchased because such attestation signals that the present ed investment results are of a high quality (i.e., reliable). Attestat ion of PPS compliance can be provided by any independent party. Result s of a survey of firms providing attestations and of investment manage rs indicate that accounting firms are the largest providers of these a ttestations. This finding is consistent with investment managers wanti ng to obtain the greater credibility of attestation offered by account ing firms. This research is motivated by the expected growth in non-au dit attestation services (Elliott 1994). Kinney (1987) notes that acad emic research has focused on the economics of the audit market to the exclusion of the market for non-audit attestation services. Yet, it is through these other attestation services that accounting firms can ob tain growth and diversification in their portfolio of professional ser vices (Elliott 1994). Given that attestation of PPS compliance is volu ntary, an understanding of the motivations for purchasing this attesta tion service will allow providers of this service to better meet custo mer needs. Results of this study provide an initial contribution to un derstanding the market for attestation services outside of the traditi onal audit market.