Pension scheme accountants need to act now if they are to meet the challenge of complying with a new, wide-ranging accounting framework, Baker Tilly has warned.

Philip Briggs, audit director at Baker Tilly’s pensions group, said: “Many accountants responsible for preparing pension scheme accounts will face a real challenge in complying with the new rules, which come into force this year.”

He added: “Pensions accountants will need to identify likely problem areas for individual schemes as early as possible and agree a plan of action to ensure the transition to the new standards can be effected as efficiently as possible.

His comments come of the back of a Baker Tilly poll of accounting professionals that found that more than 20% of pensions professionals think a new Statement of Recommended Practice (SORP) for pension scheme accounting will push up the cost of preparing statutory accounts by more than 25%.

The survey questioned some 80 pension professionals who attended Baker Tilly’s national series of SORP seminars recently.

Respondents also singled out new requirements for the need to make disclosures about investment risk and fair-values, as well as changes to the way annuities are valued, as the three areas where they expect to face the biggest challenges.

But Kevin Clark, a partner at KPMG and chairman of the Pensions Research Accounting Group’s SORP Working Party, said he was confident scheme accountants would comply with the new rules.

Clark said: “There will be challenges in the first year or so in terms of gathering information together. On the other hand, the information is there, so it is just a question of finding it.

“For pension funds to do that, particularly around risk disclosure, they will need to work with their custodians or investment managers. The key is all about engaging early and making sure they are in a position to deal with the with the new disclosures.”

Paul Cooper, corporate reporting manager with the Association of Chartered Certified Accountants in London, added: “The SORP means pension schemes will need to do certain extra things. There are gains and losses with the move to FRS 102. It shouldn’t be a big extra burden, but it will be a bit of a culture shock in year one.”

He went on: “We’ve been here before. When the Companies Act 2006 came in, medium-sized groups had to consolidate for the first time. It seemed like a big deal, but people got used to it. I am confident it will be the same here.”

The FRC issued an exposure draft of the now finalised SORP in August 2014.

The document detailed a number of changes to an earlier 2007 SORP.

The changes to the 2007 guidance became necessary after the FRC consolidated UK GAAP into a single accounting standard known as FRS 102.

The standard is a modified version of the International Financial Reporting Standard for Small and Medium-sized Entities that has been adapted for use in the UK and Ireland.

It is also a root-and-branch reform of financial reporting in the UK.

Among the areas of accounting it addresses is accounting by pension funds.

The SORP provides a layer of recommended practice on top of those requirements.

The recent changes to UK GAAP follow a number of legislative and regulatory changes.

Since the last update to the SORP in 2007, the UK pensions landscape has seen both the introduction of auto-enrolment and a growing number of pension schemes entering the Pension Protection Fund.

The new SORP sets out guidance on accounting for scrapping the exemption that allows schemes to report an annuity’s value at nil, a new valuation hierarchy based on IFRS 13, Fair-value Measurement, and investment risk disclosures.

KPMG’s Clark said: “The new accounting framework, which requires the grossing up of annuities rather than offsetting at present, reflects the legal position, as there is no legal right of offset, a fact that is highlighted when schemes enter the PPF.”

Cooper added: “Under FRS 102, you are supposed to show an asset and a liability. The changes mean pension schemes must now value the two separately. This is a compliance burden, but using an actuary will soften the blow.”

On the new fair-value requirements, Baker Tilly’s Philip Briggs said: “The pricing hierarchy in FRS 102 is different from that used in IFRS, which will create some challenges for agreeing consistent reporting formats with investment managers and custodians.”

This will be especially relevant where different reporting is required for clients reporting under FRS 102 and clients reporting under IFRS, he explained.

In other changes, the new SORP also includes a recommendation to disclose direct transaction costs for each significant asset class, introduces new accounting requirements for auto-enrolment, and addresses disclosures around actuarial liabilities.

Clark warned, however, that the UK government must still tidy up the statutory framework surrounding pension scheme accounting.

“One point worth noting is that we still have in place the statutory disclosures introduced in 1986,” he said.

“But both the SORP and the accounting framework in the UK have moved on.

“There was a general agreement among SORP working party members and respondents to the exposure draft that these need to be withdrawn to clear the decks for more relevant and current disclosures.”

Briggs added: “The DWP has indicated the appropriate changes will be made, and the industry hopes the changes will be made before the SORP is adopted by the majority of pension schemes.

“However, until the legislative changes are made, the existing requirements exist.”

Both FRS 102 and the revised SORP for pension scheme accounts apply to financial statements beginning on or after 1 January 2015.