With apologies to yet another variation on those immortal words from Star Trek, it’s just possible that pension accounting treatment in Europe might become the trend-setter for the world, surpassing even the US Financial Accounting Standards Board (FASB) that started it all almost 20 years ago.
In December 1985, the FASB introduced Statement 87 which, as we now know, irreversibly revolutionised American pension accounting. In turn, FAS 87 look-alikes started to emerge in many other countries and it rapidly became the de facto benchmark against which all other were measured. Readers will already be aware of much of this development but recent and possible future events could lead to a rearrangement of the world order.
It’s not unfair to say that the FASB has largely ignored what the rest of the world has been doing. FAS led, and the others followed. Certainly, the non-parochial International Accounting Standards Board has been attempting to paint a broader global canvas but, lacking real clout, was never taken too seriously. Until now, that is.
Let’s think through what’s been happening over just the past couple of years or so. Probably as a reaction, in part, to recent US accounting and corporate governance scandals, the FASB started to take a long, hard look at how it manages its own affairs. Concurrently, the EC issued Regulation 1606/2002 which broadly states that, from 2005, all publicly-quoted EU companies must produce accounts in accordance with IAS requirements. Separately, the UK was busy implementing its own FRS 17 pension methodology. Then, somewhere along the line, something unusual happened: the various accounting bodies started to compare notes and talk to each other. Suddenly, the word convergence is on the lips of the major accounting regulators, and agendas are being amended accordingly. In the UK, the on-going implementation of FRS 17 was halted and deferred to coincide with the EU’s 2005 effective date and, in July 2003, the British government announced that even companies outside the scope of the mandatory IAS application – largely non-quoted organisations – could use IAS instead of FRS. “IAS is the way forward,” the government said in a public announcement, which could mean that FRS 17 will become the most controversial and influential pension accounting statement that never was.
Meanwhile, IAS 19 seems intent on making changes that include the immediate recognition of actuarial gains and losses feature that sets FRS 17 apart from the others, perhaps not surprising considering that the former chairman responsible for FRS is now the chairman responsible for IAS. Not to be outdone, the chairman of the FASB has stated that he fully supports convergence of the FAS and IAS standards.
Where will all this lead? Significant elements of global convergence are now almost inevitable and it might be that IAS 19, soon to be the principal pension accounting standard throughout Europe, will make its mark everywhere else, including the US. And maybe this is the way it should be: it’s worth remembering that FAS 87 almost didn’t make it back in 1985 when three out of the seven board members voted against it. One wonders how things would be today if one of the four who said yes had wavered at the last minute. Think of it this way: had Peter Stuyvesant not ceded Manhattan to the British in the 1600s, most of the world would now be speaking Dutch.
Keith Faulkner is the head of the international consulting practice at Hymans Robertson in London. Hymans Robertson is the UK partner firm in Milliman Global. Tel: +44 (0)20 7847 6125
keith.faulkner@hymans.co.uk

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