Split opinion reflects the range of views in the marketplace and results suggest that a flexible approach from the Accounting Standards Board when it provides guidance on pension scheme accounting next year would be welcomed.
Half of pension schemes believe their pension liabilities should form part of their annual accounts and be subject to audit, according to a KPMG survey of 250 major pension schemes with assets ranging from £100m to over £1bn. But the other half take the opposite view, finds the KPMG survey. And according to KPMG, this divergence of opinion presents a challenge to accounting standards setters in determining the rules for pensions accounting.
Kevin Clark, Associate Partner in Pensions Audit at KPMG in the UK, commented: “This split opinion reflects the range of views in the marketplace and the results suggest that a flexible approach from the Accounting Standards Board when it provides guidance on pension scheme accounting next year would be welcomed.”
Accounting for pension scheme liabilities
Currently only scheme investments and scheme transactions are included in scheme financial statements and subject to an annual audit with the liabilities being dealt with in the actuarial valuation. The Accounting Standards Board (‘ASB’) is currently developing proposals to bring UK accounting into line with International Financial Reporting Standards.
Under international accounting there are three options for dealing with actuarial liabilities:
The ASB has indicated they will provide guidance on pension scheme accounting in an exposure draft to be issued early this year. The results of the KPMG survey suggest that a flexible approach, incorporating the options available under international accounting rules, would be widely supported. There has been considerable deliberation about whether the actuarial liabilities should form part of the annual audited accounts to give a more rounded picture of the financial situation of pension schemes. The Pensions Regulator, the Pensions Research Accountants Group (setters of the Statement of Recommended Practice on financial reports of pension scheme) and the Accounting Standards Board have all conducted reviews on this matter, with varying views and outcomes.
Incorporating liabilities into the audited balance sheets of pension schemes brings both advantages and disadvantage summarised below:
Kevin Clark concluded: “Unfortunately, there doesn’t seem to be a ‘one size fits all’ approach here but hopefully the ASB can find a solution that can accommodate the varying needs of differing pension schemes.”
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KPMG Pensions Assurance
KPMG currently audits the accounts of over 900 UK pension schemes. It has a UK-wide pensions audit practice and provides additional assistance to pension schemes via pensions assurance, tax, investment, restructuring, and trustee and corporate consultancy services.
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.