UK - Up to £500 million would be wiped off the balance sheets of Britain's quoted construction companies if accounting standard FRS17 was adopted now, according to consultancy RSM Robson Rhodes.
RSM Robson Rhodes said18 UK-quoted construction companies had net pension deficits of £500m under FRS17 in their annual accounts for 2003, although only one company had adopted the standard formally. This was equivalent to 7% of the net assets of the companies and more than 10 per cent of the assets of the connected pension funds.
FRS17 is seen by the regulators as the preferred standard for pensions accounting and will lead to greater transparency for pensions liabilities. All listed companies are required to adopt International Financial Reporting Standards with effect from 1 January, which would have similar impact to the requirements of FRS17.
Glyn Williams, head of the property and construction sector group at RSM Robson Rhodes, said: “Pension deficits and the cash flow impact are a high priority for company boards. Although the deficits have improved slightly due to better investment performance in the last year, the listed companies adopting IAS will have to get the investment community used to these figures appearing on the balance sheet. How much cash the deficits will required will affect market valuations.
“The cash needed will be reasonably substantial for most companies. Once on the balance sheet the liability might come to be regarded as a form of long-term debt and therefore has the potential to impact key ratios and covenants with funders as well as impacting retained reserves."
RSM Robson Rhodes said the construction sector was chosen as companies within the sector have a high prevalence of final salary pension schemes.