UK - Firms are being warned not to play "fast and loose" with FRS17 investment return assumptions to boost their waning accounts.
Consultants say tinkering with the assumptions could lead to massive increases in declared profits when FRS17 is fully implemented in 2005.
Hewitt Bacon & Woodrow principal Raj Mody says re-running results using FRS17 assumptions from the highest end of the spectrum could have a “pretty radical impact” on profits.
But independent pensions consultant John Ralfe warns that firms could be risking their reputation by “tinkering” with investment return assumptions.
He said: “All you do is draw attention to the fact that you are playing fast and loose.”
Currently FRS17 only requires firms to disclose in full how pension charges calculated by the rule would affect their profit and loss account – and it will only affect the company profits in 2005 when it is fully implemented.
One pensions analyst admitted that FRS17 figures could be “fudged”.
He said: “If four people sat down in a room and said they would lock the door until they came up with some way of fiddling company FRS17 figures, then I am sure that they could.”
But others said that FRS17 accounting rules meant assumptions used to calculate pension costs had now become much more transparent which made it increasingly difficult to cover up such moves.
The FRS17 accounting standard is set to be superseded by international standard IAS19 and it is widely believed the International Accounting Standards Board would outlaw the practice of “tweaking” investment return assumptions.
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