PRAG rejects ASB proposals on accounting for pensions

The research group’s membership rejected proposals in the standards body’s discussion paper – Financial Reporting of Pensions – to recognise the actuarial liability to pay pensions in the future at its Summer meeting last week.

PRAG honorary president Mike Young challenged the starting point of the discussion paper and advocated a "back to basics" approach by questioning whether it was the accounting profession’s role to "interfere in economic modelling".

Young also expressed concern that, although the discussion paper recognised the behavioural impact of accounting, the issue had not been properly addressed.

Executive committee member Zahir Fazal added that he believed the specific questions being asked by the Accounting Standards Board were wrong – as they assumed that pension schemes should produce general purpose financial reports.

Fazal explained that if the proposals were implemented there would be confusion as the valuation of the actuarial liability will be different for employer financial reporting, pension scheme financial reporting and for the purposes of the funding of the scheme.

He also questioned how trustees would be able to ascertain the value of the corresponding employer debt and provide appropriate disclosure without breaching employer confidences.