A leading accounting standard setter has defended new pension reforms as
providing a “fairer and more transparent” model for reporting costs.
Cooper, member of the International Accounting Standards Board, said new
pension reforms would not change how pensions are measured, only how they are
He made the comments as analysts stoked fears the changes could add billions of
pounds in losses to large companies like British Airways.
“It is true that for some companies this could lead to a higher cost reported
in profit or loss and a lower cost – or higher gains – being reported as part of
other comprehensive income, however we believe the changes will provide a fairer
and more transparent presentation of pension costs and risks,” he said.
“As we are not changing the measurement basis for pension assets and
liabilities then, apart from the effect of removing the corridor method, the
aggregate pension cost reported in the statement of comprehensive income is
The corridor method allows gains and losses from pension funds to be
deferred. Cooper said at the moment there is no clarity about how different
components of pension plans are presented.
“For instance, costs can be recognized in different categories in the
statement of comprehensive income. We propose clear requirements where and how
the different components have to be presented in the statement of comprehensive
income,” he said.
The proposals are being fought by some who believe the impact will distort
company balance sheets.
“The proposals would radically change the way organisations are required to
account for their pension costs in company accounts and would hit the profits of
companies with UK or overseas defined benefits pension schemes,” said Brian
Peters, partner with PwC.
“A company with a £2bn pension scheme would typically see reported pension
costs rise by about £25m a year.”
Big Four auditor KPMG said yesterday proposals are likely to attract
controversy but also add clarity to accounts and limit the use of off-balance
sheet accounting treatment.
“In proposing a presentation solution that keeps the resultant volatility out
of net income the Board has tried to be responsive to concerns about this
important performance measure otherwise being undermined,” Lynn Pearcy, KPMG’s
global IFRS employee benefits standards leader said.
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