RegulationAccounting StandardsNew pension proposals released by IASB

New pension proposals released by IASB

Proposals will hit profits but provide clarity

New accounting rules which would force companies to be upfront about their
pension liabilities, have been released.

The International Accounting Standards Board today released draft pensions
rules which force companies to recognise more of their pension costs in their
profit and loss statements.

The measures will disaggregate pension liabilities into a service, interest
and remasurement costs.

Under the proposals companies pensions will have a much greater impact on
profits – the key metric analysts use when assessing a company’s performance.
Companies will also no longer be able to defer their recognition of gains and
losses arising from pension schemes.

The proposals aim to make the accounting more consistent among companies, and
better represent the underlying economics of pension transactions.

But they are being fought by some however who believe the impact will distort
company profits.

“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 the 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.

Read the full draft standard:
IASB
proposes improvements to defined benefit pensions accounting

Further reading:
Pension
plans will add £10bn to pension costs: PwC

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