BusinessCompany NewsGKN profits threatened by FRS 17

GKN profits threatened by FRS 17

FTSE 100 company GKN could have seen its profits wiped out if it had not decided to defer implementation of controversial accounting standard FRS 17 in what will be seen as another example of the volatitlity caused by the rule.

GKN’s interim results, released today, indicated that the adoption of FRS 17 would have lead to a balance sheet deficit of £343million, after deferred tax.

Links: Read more on FRS 17

The company today announced a fall in pre-tax profits of 5% to £136m on flat sales of £2.24 million for the first half-year.

Deficit in previous years stood at £169million up to 31 December 2001 and a small surplus up to 1 January 2001.

However the current shortfall in its pension funds would have wiped out current year interim profits, if the full impact of the deficit were recognised immediately, as FRS 17 requires.

The company has chosen to defer the adoption of the standard, and indicated that it would ‘adopt in line with either the requirements of the ASB or International Accounting Standards’.

A spokesman for the company said: ‘The effect of FRS 17 is to introduce a high degree of volatility, whereas the liability is longer-term’.

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