UK - The equity return, inflation rate and discount rate assumptions used by UK consultants vary widely among clients of the same actuarial adviser firm, and between clients of different advisers, according to a report from Blacket Research.
The report shows that during the 12 months to March 2005, the equity return rate for the median client of Watson Wyatt was over 50bp higher than that of Mercer, while the FRS17 inflation rate assumed by the median client of Hymans Robertson was over 20bp lower than the median client of Mercer.
Blacket also found that in 2004 auditors accepted equity return rates as high as 8.9% without question; some 2.5% above the lowest rates approved.
“The variation in the assumptions used by clients of each advising firm, and the differences in key areas such as discount and inflation rates surprised us,” said Roger Brown, founder and managing director, Blacket Research.
Minor changes in either of these can have a major impact on the value of liabilities, and the company’s balance sheet.
Blacket Research is launching a new quarterly report designed to give finance directors the inside track on FRS17 assumptions.
The FRS17 Assumptions Report shows the main theories grouped by the advising actuarial consultancy and by auditor.
As a result, finance directors can understand the influence that the choice of actuarial adviser may have, and this can help establish the tolerance of their auditor to different FRS17 suppositions.
Roger Brown, founder and managing director of Blacket Research, said the report would help industry experts place their ideas in context alongside other major companies.
He commented: “We had been led to believe that there was a very narrow range in which companies could set their FRS17 assumptions without having their accounts qualified by their auditor. This is clearly not the case.
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