The Accounting Standards Board is pressing ahead with plans to force companies with pension funds to reflect the current market value of investments on their balance sheets despite evidence that the move could introduce damaging fluctuations. In the face of resistance from actuaries and blue-chip companies, the ASB is expected to agree a new pensions exposure draft at its next meeting in September. The standard – which could persuade some funds to pull out of equities and invest more conservatively – may apply as early as next year. The ASB is not releasing results from secret studies carried out by leading companies and firms. But participants said requirements to show pension assets and liabilities at market values would introduce huge swings year on year. To smooth the impact, the new standard will require changes to be reported in the statement of total recognised gains and losses. Recycling subsequent gains through the profit and loss account will be prohibited. Project director Anne McGeechin said field tests ‘bore out our expectation they would be big and bumpy numbers, but they need to be viewed in context’. The STRGL approach will show long-term trends, but not affect operating profit and loss figures, she added. Glaxo and Sainsbury’s field tested the standard by applying it retrospectively to their accounts. PricewaterhouseCoopers conducted similar trials with around ten clients. Sainsbury’s pension manager Geoff Pearson said: ‘Our concern is that volatility will take more account of noise in the system than the likely real increases in pension costs.’ The change will hit all listed companies including the UK’s largest, BP Amoco – which this week reported a 19% rise in second-quarter replacement cost profits to $1.37bn (£854m). Institute of Actuaries pension board chairman Michael Pomeroy said trial results were ‘as expected’. But he warned companies might now invest more in bonds than equities and scrap final salary schemes. ‘If you move away from actuarial smoothing, you will get something more transparent, but more volatile,’ he said. ‘The STRGL approach will keep some of the volatility out of the profit and loss, but swings from one year to the next will go through to the balance sheet.’
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