Watchdog warns over actuaries

A new consultation paper issued this month by the Auditing Practices Board looks at the difficulties surrounding FRS17, the controversial new accounting standard that deals with company retirement benefits.

Companies will now have to measure assets and liabilities using market values rather than at historical cost. This is expected to cause increased volatility in balance sheets, but standard setters argue it will show a clearer picture of pension schemes.

The discussion paper stresses that it is the responsibility of directors – not auditors – to prepare financial statements that comply with the standard. It also highlights the growing need to open up communication channels between all parties dealing with pension funds.

The paper will be good news for auditors, who earlier this year voiced their concerns over the amount of knowledge the new standard assumes.

Ian Plaistowe, APB chairman, said: ‘Successful implementation of FRS17 will depend on careful planning by company directors. This will involve identifying and briefing all the parties that will be involved in the process.

‘In particular, producing actuarial valuations takes time: actuaries need to be engaged well before the year end so that their work can be integrated into the timetable for producing and auditing the accounts.’

The discussion paper also warns auditors that they should obtain audit evidence connected with the work of actuaries.

Ian Plaistowe, APB chairman, said: ‘FRS17 will, for the first time, bring onto a company’s balance sheet the surplus or deficit in its pension scheme. This may have an important impact on the picture that is portrayed by the financial statements.

‘Yet these figures, although very large, are inevitably very imprecise: they are based on a complex valuation process involving extensive estimation and they may be highly sensitive to even very small changes in the underlying assumptions.’

He added: ‘Although it is not the auditors? job to second guess the actuary, they need to consider whether the process established by the directors is appropriate.’

Business has expressed concerns over the volatility the new standard will bring to their accounts, and how analysts will interpret the changes.

However, some companies, such as Boots, have already introduced the new standard. In this year’s annual report, unveiled by chief executive Steve Russell, the high street chemist reported a pension scheme surplus of £250m under FRS17.

The closing date for comments on the paper is 21 September.


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