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Overseas fund liabilities may double under FRS17

EUROPE - The gap between local accounting estimates of pensions liabilities and those that will face UK companies under FRS17 accounting standards for pension plans in different countries, has been highlighted by international consultants William M. Mercer....

In Germany the increase in liabilities if FRS17 is applied could be 50% for book reserved pension plans, says the consultant - using experience of investigations involving comparisons of local accounting and the FRS equivalent.

For Swedish book-reserved SPP plans, the increase could be 15%, while liabilities for Italian TFR end-of-service indemnities could show a reduction of some 20%.

Further afield within Japanese pension plans the increase thrown up under FRS 17 rules could also be of the order of 50%.
Mercer warns: “The impact on profit and loss figures can be magnified to lead to even greater differentials.”

In a survey last month among 100 UK multinationals, to which nearly two thirds responded, the findings showed that in general respondents had relatively few valuations performed for their subsidiaries abroad.
Under the current SSAP 24 accounting rules the impact of foreign schemes in terms of adjustments can be minimal.

Around three quarters of companies had yet to review their overseas plans in the light of FRS 17, according to the survey.
Mercer points out that FRS 17 contains none of the ‘escape clauses’ of SSAP 24.
It also notes that retirement indemnities used in countries like France and Italy, and many in Latin America, which are often not regarded as retirement plans, will come under the new standard fully.

Most companies do not now perform any valuations for overseas schemes, but in future it looks that at least half of respondents will have to do between one and four valuations for consolidated accounting purposes.
The same companies expect to set the assumptions on which the valuations will be carried out centrally, the survey finds, which is permitted by the standard.
But Mercer points out that there will be issues of cross border compatibility and consistency.
So between a Dutch and a German valuation there should be clear consistency in assumptions since both are in the Euro-zone.

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