11 December 2006
The Accounting Standards Board has agreed to publish a Reporting
Statement entitled 'Retirement Benefits - Disclosures', which is
designed to promote greater transparency in the financial reporting
of pension schemes.
The Reporting Statement is designed as a best practice guide and
is intended to have persuasive rather than mandatory force. It may
be applied by any entity that operates a defined benefit scheme.
The disclosures recommended in the Reporting Statement complement
the disclosure requirements of the mandatory FRS 17 standard.
Recommendations in the Reporting Statement aim to assist the
users of financial statements in understanding the risks and
rewards and funding obligations arising from defined benefit (DB)
pension schemes. The Reporting Statement sets out six principles to
be considered when providing disclosures for defined benefit
schemes in the financial statements. The six areas addressed by the
principles are:
the relationship between the entity and trustees (managers) of
the defined benefit scheme;
the principal assumptions used to measure scheme
liabilities;
the sensitivity of the principal assumptions used to measure the
scheme liabilities;
how the liabilities arising from defined benefit schemes are
measured;
the future funding obligations in relation to defined benefit
scheme; and
the nature and extent of the risks arising from financial
instruments held by the defined benefit scheme.
The ASB undertook a review of disclosures related to DB pension
schemes in light of concerns expressed by commentators, including
investors, that financial statements did not contain sufficient
information to allow users to adequately assess the risks.
The final recommendations are, in the main, unchanged from those
set out in the draft Reporting Statement published in May. The
Board has, however, taken into consideration the view of
respondents regarding the recommendation to disclose the estimated
buy-out cost of scheme liabilities. It is recommending disclosure
of the buy-out amount where it is already made available to members
and/or trustees of the scheme.
Publication of the Reporting Statement is due in January
2007.
Announcing the Board's decision, Ian Mackintosh, Chairman of the
ASB, stated: "The recommendations in the Reporting Statement aim to
assist users by encouraging the disclosure of greater information
regarding the risks and rewards of defined benefit schemes. At the
same time, as a best practice guide, the Reporting Statement allows
preparers the flexibility to provide disclosures that are
appropriate to the risks their particular entity is exposed to.
"The ASB, which has long been an international leader in the
field of pensions accounting, is also leading work on a research
project which is a more fundamental review of the issues. It is
anticipated that a Discussion Paper setting out the ASB views will
be issued in the first half of 2007."
