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Accounting for Pension Costs FRS17 - first year disclosure
Nigel Hacking looks at the way the new accounting standard has impacted on what companies have to show in their annual reports and accounts.
One of the features of the new accounting standard for Retirement Benefits (FRS17) is a much more detailed level of disclosure than has been the case under the previous accounting standard SSAP24.
Although companies do not need to fully adopt FRS17 until accounting periods ending on or after 22 June 2003, they are nevertheless required to include information in the notes to the accounts for periods ending on or after 22 June 2001. The requirements are:
| Accounting Period sending on or after: |
Impact on the accounts |
| 22 June 2001 |
Disclosure of the FRS17 balance sheet figures |
| 22 June 2002 |
Disclosure of the FRS17 balance sheet, profit and loss and STRGL figures |
| 22 June 2003 |
Full adoption of FRS17 |
Companies are therefore having to get to grips with FRS17 immediately, in order to comply with the first year disclosure requirements. Careful thought should be given to the figures included in the first year disclosure particularly the expected long term rate of return on the scheme's assets, since this will affect the profit and loss disclosure for the second year, which in turn will affect the comparatives given when FRS17 is fully adopted.
An example of a first year disclosure note is shown below for a company with an accounting year ending on 31 August 2001.
Example:
Pensions Note to the Balance Sheet for the year ended 31 August 2001
The following note should be added to the end of the existing SSAP24 pension note.
The information included in the accounts and in the above disclosure note follows the requirements of the existing standard for accounting for pension costs: SSAP24. However, a new accounting standard - FRS17 - has now been introduced and the information below is disclosed in accordance with the transitional provisions of FRS17.
|
| As at 31/8/2001 |
| Market value of assets |
£100m |
| Present value of the scheme's liabilities |
£90m |
| Surplus in the scheme |
£10m |
| Related deferred tax liability |
£(3)m |
| Net pension asset |
£7m |
The value of the scheme's liabilities has been determined by the actuary based on the results of the actuarial valuation as at 6 April 2000 updated to the balance sheet date and using the following assumptions:
|
| |
| Rate of increase in salaries |
5% per annum |
| Rate of increase in pensions in payment |
3% per annum |
| Rate of revaluation of pensions in deferment |
3% per annum |
| Inflation assumption |
3% per annum |
| Discount rate |
6% per annum |
The assets of the scheme and the expected long term rates of return as at 31 August 2001 were:
|
| Value as at 31/8/2001
| Expected long term return |
| Equities |
£80m |
8% per annum |
| Bonds |
£20m |
6% per annum |
| Total market value of assets |
£100m |
Nigel Hacking, September 2001.