UK- The majority of UK companies have yet to take up the new pensions accounting standard FRS17. A survey by PricewaterhouseCoopers survey illustrates a lack of enthusiasm for early adoption of FRS 17 with only two out of a random sample of fifty FTSE 250 companies confirming they have implemented the standard in full. One other has stated that it will adopt it this year.
PwC says the disclosure required as of June 2001 for those who have deferred adoption (i.e. the theoretical surplus or liability had FRS17 been adopted) shows FRS17's potential effects.
Of the 39 companies in the survey with DB schemes, 70% were in deficit while 30% had surpluses. Had those companies with DB schemes adopted FRS 17 in full then the net surpluses of these companies would have been reduced by up to 14% and the gearing increased by up to 16%.
PwC senior partner Peter Holgate said of the report: “the message is consistent: companies are not rushing to adopt FRS 17 early. This result is not a surprise given the publicity surrounding the standard and the potential impact on net assets and gearing.
“Furthermore, there is so much uncertainty over the future of accounting for pension costs, both in the UK and internationally, that a policy of ‘wait and see’ seems sensible.”
This finding supports the Accounting Standards Board’s stated intention to defer plans to bring the pensions accounting rule into full force until June 2005. Last month ASB chairman Mary Keegan said they were proposing to defer mandatory adoption while the International Accounting Standards Board considered the future of the global standard, IAS19. Companies listed in the EU are obliged to apply international standards in 2005.
PwC’s report shows most companies continue to prepare accounts according to FRS 17’s predecessor, SSAP 24. FRS 17 uses the current value of the scheme surplus or deficit whereas SSAP 24 uses actuarial valuations that can be up to three years old.
The survey revealed that almost two thirds of the companies surveyed had a surplus in their balance sheets under SSAP 24, whereas under FRS 17, 58% of these would have recognised a deficit.
Accounting under FRS 17 relies largely on assumptions and the survey revealed variations in those made by actuaries about variables, such as the return on equities, where a consistent view would have been expected.
The PwC report estimates that for the average company in the survey, the difference in profit between the most prudent and the most aggressive assumptions for return on assets would have been over £50 million.
Says Holgate: “SSAP 24 was often criticised for being too heavily influenced by subjective assumptions. It seems that FRS 17 may soon be tarred with the same brush.”