Ernst & Young, the accounting company that announced the closure of its defined benefit scheme in March, has suggested the new accounting standard FRS17 be dumped by UK companies in favour of an international standard due to come into force in Britain in 2005.
Allister Wilson, head of Ernst & Young’s financial reporting group, questions the logic of companies undertaking the cost of implementing a UK standard that will soon be superseded. He maintains that it should discard it in favour of a pensions rule devised by the International Accounting Standards Board, the body created last year to campaign for global accounting rules.
As of 2005, companies listed in the EU will have to adhere to standards set by the IASB. Wilson, an advisor to the EC on accounting policy, says companies will in practice have to introduce the standards prior to the 2005 deadline.
“The UK should move now. Companies need to make sure they are fully up to speed with the impact the international standard would have,” he says.
Ernst & Young gave FRS17 as one of the catalysts in its decision to close the final salary scheme. Greater longevity and falling investment returns were also behind the decision to switch to DC.
FRS17’s creator, the Accounting Standards Board, has come under fire for producing a measure that is seen as excessively short term.
Funds are forced to report assets and liabilities at market value on the balance sheet whereas the previous scheme permitted smoothing over a period of time.