FRS 17, the new accounting standard for UK pension funds could have major implications for company profits and has already forced one quoted company to cut its dividend to shareholders, according to research carried out by SEI Investments.
The SEI research, which examined awareness of the implications of the new accounting standard amongst finance directors and chief executives of UK companies with turnovers between £1m–100m (e1.6m–160m), revealed that more than three quarters could not describe what the effects of the new standard might be.
“Senior managers in general do not know what FRS 17 is. 88% of those surveyed could not describe anything about it and even financial directors had little more understanding, with 79% admitting they knew nothing about it,” comments SEI.
The firm says 62% of those prompted by a description of FRS 17 were unable to indicate the implications for their company. “Of those who did, 15% believed that FRS 17 would cost more money, 9% felt that the reported results would fluctuate and 8% believed it would cause their company to change procedures.”
FRS 17 is designed to make the cost of providing pensions more transparent within company accounts by obliging firms toput clear valuations on assets and liabilities within their schemes. The standard dictates that a portion of the cost should be routed through the profit and loss account.
If there is a deficit in a final salary scheme, then it has to register on the company balance sheet – affecting its distributable reserves.
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