A new survey has found that only 8% of the UK's largest multinational companies plan early implementation of FRS 17 regulations (the new pensions accounting standard).
The consultancy firm William M Mercer has conducted a survey of over 60 of the UK’s largest multinational companies, with the aim of assessing how prepared they are for the global impact of FRS 17. The standard will have major implications for companies operating pension plans both within and outside the UK.
Although companies must implement FRS 17 by 2003, the Accounting Standards Board has recommended that they adopt the new standard as early as possible. The survey found, however, that only 8% of companies plan an early implementation and some 60% have still not decided on a timing, whilst 32% say they intend to hold back.
Understandably, companies are reluctant to move until they have to, said Paul Kelly, European partner with William M Mercer. The effect of FRS 17 could potentially be detrimental to their profit and loss accounts, knocking millions of pounds off the bottom line profits. Where this is the case, it’s not unreasonable to want to delay action until the last minute.
The survey showed that a quarter of companies have already completed a review of FRS 17 and its effect on their overseas pension plans. Over a third of companies (36%) said they are planning to conduct a review, while the remainder had no plans or said it was too early to say.
Two camps appear to be emerging - a number of leading companies already on top of the problem, and others that are just starting to think about it, said Kelly.
Under SSAP 24, companies have not needed to perform actuarial valuations of their overseas plans. In future, however, survey respondents anticipate having to carry out valuations for between 1 and 4 of their overseas operations.
FRS 17 is very clear that its scope applies equally to foreign schemes as UK ones. There are none of the escape clauses of SSAP 24, and the only rationale for not conducting local valuations is that overseas plans are too immaterial for consolidated accounting purposes.
In practice, companies may find that FRS 17 affects many more of their overseas plans than they think. From the survey responses, the impact on operations outside the Anglo-Saxon world, in particular, may not be so well understood,” he said. “Although not commonly thought of as retirement schemes, retirement indemnities in France, Italy and many countries of Latin America, the Middle East and Far East will fall fully under the new standard.
In the survey, Australian plans were most commonly mentioned by respondents as being affected by FRS 17. Other countries commonly mentioned were Germany, the Netherlands and US followed by Canada and South Africa.
Separate research by Mercer has shown that FRS 17 will have a wide-ranging impact on profit and loss accounts depending on the countries involved. Liability estimates under FRS17, compared to local accounting standards, could rise by as much as 50% under Japanese plans and German book-reserved plans.
In future, HQs will need to identify and co-ordinate the actuarial assumptions used by their overseas operations. The effect will be to push multinationals further down the road of global co-ordination, ensuring that they take a more proactive role in managing their overseas plans.
Compared to their US counterparts, UK multinationals have tended to work on a more decentralised basis up to now. In future, the effort involved in establishing the processes and collecting data for this more ëhands oní approach could be substantial, Kelly added.
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