Accounting Disclosures
More and more employers are closing their defined benefits schemes to new entrants, or even closing schemes to all members. Most employers will cite the rising cost of pension provision and the volatility of liabilities on the balance sheet as reasons for doing so. But do the pension disclosures in the employer's annual accounts fully reflect the circumstances of their Scheme?
Apart from where dictated by the relevant accounting standard (usually FRS17 or IAS19), Directors have considerable control over the assumptions to be adopted in the calculations. Many of the assumptions ultimately adopted reflect those that have been used for the latest Statutory Funding valuation. However, it is a legislative requirement that assumptions for Statutory Funding purposes must be prudent, whereas assumptions to be used for accounting purposes should be more of a 'best estimate', taking into account the Scheme's specific circumstances. The result can be overstated liabilities and pension costs in the employer's accounts.
BBS has considerable experience and expertise advising companies on their pension accounting disclosures and undertaking the necessary calculations. We provide this service to both companies where we have been appointed as Scheme Actuary to their Scheme, and also to companies where we do not act as Scheme Actuary to the Scheme.
In addition, BBS regularly issues updates to our clients on any changes to FRS17 and/or IAS19 so that clients have plenty of time to review the likely impact of the changes. The latest changes to IAS19, due to come in into effect for accounting periods commencing on or after 1 January 2013, will remove the corridor approach for recognising actuarial gains and losses, require the expected return on assets to be equal to the discount rate used, and require expected future administration expenses to be capitalised and included in the liabilities. The expectation is that FRS17 will follow suit.
The South West Index
BBS monitors the funding of the largest pension schemes in the South West of England and publishes "The South West Accounting Index". Monthly updates are available for download.Case Study
Do you know how these changes will affect your accounting disclosures? Why not take a look at our case study?
