SMEs may act to avoid FRS 17
Small and medium-sized companies might accept qualified audit reports rather than comply with FRS 17, the controversial new pensions standard, Accountancy Age has learned.
As arguments this week continued to rage around FRS 17, FDs in SMEs are privately warning they might be prepared to accept qualified accounts to avoid the effects of the standard.
Experts said small companies that accepted their accounts being qualified by auditors could also avoid being noticed by the watchdog, the Financial Reporting Council, and its enforcer, the Financial Reporting Review Panel.
Peter Holgate, senior technical partner at PricewaterhouseCoopers, said even private companies with more than 250 employees, which come under the jurisdiction of the FRC, might get away with not applying FRS 17.
‘There’s a reasonable chance they could get a qualified audit and it would never be noticed by the FRRP,’ he said. But he warned that those companies would face serious difficulties if they wanted to raise finance through a bank or other financial institution.
FRS 17, which takes full effect from June 2003, requires companies to show their pensions’ surplus or deficit in the balance sheet, instead of allowing businesses to smooth the asset or liability over a period of around 20 years. Crispin Southgate, a European credit strategist at Merrill Lynch, said companies not complying with the standard would set off alarm bells. ‘A red light goes on with a qualified audit report,’ he said.
Experts agree no large listed company would attempt such a move because it would come under FRC pressure to adopt the standard through a restatement.