Ernst & Young has today questioned whether the Accounting Standards Board has exceeded its authority with its controversial proposals to overhaul pensions accounting rules.
The statement by the firm is the latest in a chorus of protests against the proposed new standard – FRED 20 – which requires pension fund assets and liabilities to be valued on a market-related basis.
Critics argue the move will result in considerable volatility in those values and in pension costs, one year to another, and may therefore harm employees’ pension arrangements because employers will be more reluctant to offer defined pensions schemes.
But E&Y is the first of the critics to go as far as challenging the ASB’s mandate.
Allister Wilson,the firm’s director of accounting, said: ‘We question whether the ASB has a mandate to pursue these proposals which, in our view, will cause a confusing distortion of companies’ financial performance measures.
‘In addition we challenge whether the proposed approach meets the ASB’s own objectives and constraints in selecting accounting policies, namely those of understandability, reliability, comparability and, above all, relevance.’
He added: ‘Ernst & Young does not support the changes proposed by FRED 20. It considers its effects on company reports will be disadvantageous; that the ASB has no mandate for the changes and considers the justification of international harmonisation is simply not delivered.’