FRC investigation into WHSmith accounts could see advisers and clients review pension liabilities on financial statements
A FAILURE by WHSmith to recognise a pensions liability in its annual accounts, could result in accountants changing the way they prepare financial statements.
The high street retailer was forced to restate its 2012 annual accounts – resulting in a £4m profit hit – after a review by the FRC found that it had incorrectly decided against recognising certain pension liabilities in its accounts.
Robert Moorhead, chief financial officer at WHSmith, explained to Accountancy Age that the FRC’s findings were around a “very technical” piece of accounting and a “grey area” on the balance sheet.
Advisers are now expected to speak to clients to review the way they approach the recognition of certain pensions liabilities in the light of the FRC’s findings.
The main issue arose from WHSmith’s decision not to recognise as a liability in its accounts a schedule of contributions, prepared under section 227 of the Pension Act 2004, between a subsidiary of the company and the company’s pension trustees. WHSmith did not view the schedule of contributions as a ‘minimum funding requirement’ to be accounted for in accordance with the interpretation of accounting rules.
Moorhead said the company was in the “unusual” position of having a surplus on its pension, of £108m under IAS19 – an accounting standard concerning employee benefits – though it had an actuarial deficit of £75m.
“Since the company has had the surplus since 2006, we had taken the view that we would recognise neither surplus nor deficit in accounts,” he said.
He added that, based on the FRC clarification, the liability should be reflected on the balance sheet.
The restated figures, issued this month for the year ended 31 August 2013, resulted in net assets being cut to £95m from £149m, and profit after tax falling to £80m from £84m.
A note in a WHSmith statement said: “Following correspondence with the Financial Reporting Review Panel of the Financial Reporting Council’s Conduct Committee, the company has accepted that the schedule of contributions is a minimum funding requirement within the meaning of IFRIC 14, and falls to be accounted for as a liability in its accounts for the year ended 31 August 2012.
“Accordingly in the 2013 financial statements, we have recognised the schedule of contributions as a liability of £62m and a resulting deferred tax asset of £12m on our balance sheet.”
Moorhead said that, for the company, the matter is “concluded for us, we have made the changes and reflected the liability which has had no effect on our performance so we are going to get on with doing business”.
An FRC statement said that following the corrective action taken by the company, the FRC considers the matter “concluded”.
The accounts were signed off by its auditors Deloitte. A spokeswoman for Deloitte said it could not comment on individual clients.