30th July 2018 Anne-Marie Winton comments in IPE on FRC’s criticism of DB accounting standards

The UK Financial Reporting Council (FRC) has concluded that there is “some scope for improvement in a number of aspects” of the work carried out by auditors and actuaries on defined benefit (DB) pension scheme liabilities.

The audit regulator probed the accounts of 125 DB scheme sponsors under International Accounting Standard 19, Employee Benefits (IAS 19), over the past year.

Anne-Marie Winton commented: “I see this as a missed opportunity by the FRC – they are starting from the wrong place.

“The IAS 19 valuation will invariably be significantly lower than the funding valuation that is agreed with the trustees, for example.”

Anne-Marie added that the core problem was not one of professional incompetence, despite some of the immediate media responses to the report.

“The problem is that we are not comparing like with like,” she said. “In my view, the figures in the financial statements fail to highlight the level of risk to investors.

“The reason is that the accounting is done on a best estimate basis, whereas the funding is on a prudent basis.”

Read Anne-Marie’s comments in IPE

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