A critical vote is to be taken today by the Accounting Standards Board, which could put pressure on companies to disclose their pension deficits on a 'buy-out' basis – a number far larger than the one that appears on their balance sheets.
The ASB has been working on proposals to improve the quality of the level of disclosure of risks and liabilities.
The ASB’s has now amended FRS 17, which deals with retirement benefits, so that any company that operates or sponsors a defined benefit scheme should have to issue a reporting statement, with a ‘buy-out’ value for deficits.
The amendment incorporates disclosures about the relationship between companies and trustees, the principal assumptions used to measure scheme liabilities, how the liabilities arising from defined benefit schemes are measured, the nature and extent of the risks arising from the assets held by the defined benefit scheme, and even the future funding requirements for the scheme.
The new disclosure would not be mandatory but companies that fail to adopt the practice could find themselves under pressure from shareholders.
Preparers of statements as well as audit professionals have objected to the idea of scheme liabilities being revealed by virtue of calculating their ‘buy-out’ values. This is because such different figures are bandied about for buying out a pension scheme’s liabilities, ranging from the amount an insurance company may want in order to settle, to the varied figure calculated for accounting purposes.
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