PracticeAccounting FirmsPensions fears over over-funded schemes

Pensions fears over over-funded schemes

A change by accounting rule makers on how surplus defined benefits assets are recognised could lead to an 'accounting black hole' at large UK companies, experts have warned

The decision means companies that have over-funded their pension schemes may
in some cases have to record the surplus as a liability.

When IFRIC14 comes into force, companies will have to recognise an additional
liability under IAS19 if the minimum funding requirement creates an ‘onerous
obligation’ – a duty to pay additional contributions to the plan that will not
be returned to the employer as a refund or be translated into lower employee
contributions.

David Fogarty, a partner in Mercer Human Resources Consulting’s financial
strategy division, said: ‘On an accounting basis, many FTSE 100 company schemes
are now fully funded and a good number of others are nearing that position.

‘In future, companies may want to re-direct their investments from equities
to bonds as any visible economic benefit of accumulating surplus assets may be
lost.’

The International Accounting Standards Board division hammered out the new
rules in a bid to standardise practice and have extra assets recognised on a
level playing field.

‘This change will force many companies to consider where to position their
funding targets and extent to which they should be taking investment risks with
their pension plans,’ said Fogarty.

Many companies and trustees are discussing setting a funding policy and
investment strategy that aims to accrue assets above the current IAS19
accounting liability.

However, Mercer believed that the new IASB guidelines would mean additional
funding would disappear into an ‘accounting black hole’.

IFRIC14 comes into force for annual accounting periods starting from 1
January 2008.

COMPANY REPORTS

KPMG calls for CFC dialogue

UK-based companies with offshore divisions are being encouraged to enter into
talks with the Treasury before new proposals on the taxation of the overseas
arms are finalised. Companies seemed hesitant to respond to a Treasury
discussion paper, according to KPMG, which outlined sweeping changes to the tax
treatment of offshore operations.

The government’s tax policy chiefs have offered an olive branch in the form
of plans to exempt foreign dividends from tax, but companies are being urged to
open discussions and ensure that the proposed anti-avoidance measures for
controlled foreign companies are not excessively constrictive. Sue Bonney, the
Big Four firm’s head of UK tax, said: ‘If UK business fails to engage with the
authorities, it will be on shaky ground if it later complains about the final
shape of the reforms.’

iSoft agrees £160m offer from CompuGROUP

iSoft has agreed an all-cash offer of £160m from software provider CompuGROUP
UK Ltd. CompuGROUP UK is a newly-formed, wholly owned subsidiary of CompuGROUP
Holdings AG, a software company quoted on the Frankfurt Stock Exchange.

CompuGROUP’s offer depends upon iSoft shareholder approval and permission
from the courts. iSoft will also have to pay IBA nearly £1.4m for pulling out of
a previous takeover deal by the company: ‘iSoft has agreed that it will serve
notice on IBA terminating the IBA Implementation Agreement, which will trigger
an obligation on iSOFT to pay to IBA an inducement fee of £1,397,137,’ it said
in a statement to the stock exchange.

Google man settles SkillSoft claim

Google’s chief legal officer and Ernst & Young have settled claims by the
US Securities and Exchange Commission for accounting misstatements at the
executive’s former employer, SkillSoft Plc. David Drummond, who served as chief
financial officer at New Hampshire-based Skillsoft until 2002 while it was known
as SmartForce, agreed to pay $574,000 (£287,000) to settle claims that he let
the company overstate revenue, the SEC said in a statement yesterday. The SEC
censured Ernst & Young in Dublin, which agreed to pay $725,000, because it
did not assign auditors with enough expertise to examine the software company’s
accounts.

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