With profits providers are under additional pressure today following the Penrose Report's identification of Equitable Life's ability to obfuscate the real situation with regards to its assets and liabilities.
This was made possible because of slack rules on accounting for with profits business, the report says.
However, Lord Penrose's most damning point is that the issue of accounting deficiencies is not company-specific, but one stretching across the entire with profits sector.
"The industry cannot be left to its own devices," Penrose says in his piece reviewing the accounting of with profits.
"Without specification of standards, there would continue to be wide scope for differences of opinion that left financial statements substantially meaningless in absolute terms, and difficult to compare with other companies’ accounts."
And, despite the rattling the industry has already been through with the FSA’s involvement in forcing companies such as Standard Life to suitably introduce its new realistic reporting requirements, the regulator is likely to look to Penrose’ words for support.
"I welcome the work that has been undertaken by FSA (sic) to develop the role of realistic accounting in the regulatory sphere," he says.
"This is of particular importance at present, given the absence of adequate accounting standards."
Had transparency been better at the time, then the Equitable Life disaster may not have developed as it did, Penrose adds.
"Had the society made clear at any time during the 1990s that there was no accounting recognition of accrued terminal bonus, and that the amount intimated to policyholders was not covered by available assets, the impact on its public image would have been huge."
It is with this in mind that the Treasury yesterday requested the Accounting Standards Board undertake "an urgent study into the accounting of with profits business by life insurers".
Details of the study are expected once the ASB has reviewed the Penrose Report, but treasury secretary Ruth Kelly is already pushing for recommendations to be made by the year-end.IFAonline
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