Pensions reporting under International Financial Reporting Standards should be explained more simply with more disclosure of the uncertainties around accounting estimates.
The Financial Reporting Review Panel (FRRP) makes the comments in its ‘Review of pensions disclosure under IFRS and UK generally-accepted accounting principles (GAAP)’ which compares the clarity and completeness of firms which report under International Reporting Standards (IAS) 19, with those using Financial Reporting Standard (FRS17).
Aimed to complement the work being carried out by the Accounting Standards Board, which is considering possible amendments to FRS17 based on IAS19, the report said the FRRP was encouraged by “the high level of compliance with the detailed disclosure requirements of IAS19”.
However it suggested the reporting, carried out by a sample of 20 listed companies using IAS19, could be improved by:
- A better disclosure of the uncertainties surrounding accounting estimates
- A more consistent interpretation of what is meant by principal assumptions
- A focus on simpler, more accessible and less technical explanations
- Giving more information about the non-standard type of assets it holds
- Avoiding detailed disclosure of immaterial amounts
In addition the 15-page report also noted a high level of compliance with FRS17 in the 10 private companies it surveyed as using it, although it admitted there were a number of omissions, particular where three years of data was required, but it said there was no instances of non-compliance which warranted intervention.
Bill Knight, chairman of the FRRP, says: “the review demonstrates a high level of compliance with substantial and complex disclosure requirements for which preparers should take credit. “
He adds the report will help inform the Financial Reporting Council (FRC) and others as they work to improve the quality of pensions reporting in the UK and help shape the development of best practice in this area.
The review of UK reporting standards comes as the European Commission announced a joint work plan between European Union and US regulators to try and improve the enforcement of IFRS.
Charlie McCreevy, European Commissioner for internal markets and services, says he welcomes the joint operation between the Committee of European Securities Regulators (CESR) and the US Securities Exchange Commission (SEC).
He says it outlines concrete measures which acts as an important step in bringing about operational and supervisory cooperation between regulators to ensure consistent enforcement of IFRS and US GAAP.
The work plan will also cover other areas such as the modernisation of financial reporting and disclosure and the discussion of risk management practices.
Improved and amended reporting standards such as IAS19 mean companies are under more pressure to disclose their exact pension liabilities, which some industry experts believe is an opportunity for companies entering the bulk annuity market, as companies try to offload their liabilities to improve their balance sheets.
Recent research from Lane Clark & Peacock, the actuarial consulting firm, shows the combined defined benefit (DB) pension scheme deficit for FTSE 100 companies is currently £36bn, and despite increased contributions the liability is not decreasing.
The EU says it has decided to set up the joint work plan because “consistent enforcement of IFRS is needed in order to achieve high quality, comparable financial statements across the 8,000 listed companies which have to apply IFRS”.
But it points out there is also the need to create conditions which make it easier for IFRS and US GAAP to interact properly by 2009, under a ‘roadmap’ designed by SEC staff. In addition the work plan will be the basis for cooperation on IT solutions for disclosure and for the development of regulatory platforms for risk management.
McCreevy says: “This joint work plan is an important element in achieving consistent application and enforcement of IFRS and US GAAP. It remains crucial regulators continue to work together to avoid any conflicting regulatory decisions on the application of IFRS.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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