GLOBAL - The controversial accounting rules FRS17 and its international counterpart IAS19 should be scrapped as they do not "make any sense", according to Francis Ghiloni, head of sales and marketing at Britannic Asset Management.
Ghiloni claimed that the controversial rules could be scrapped soon, as they have already caused “too much noise, too much pain” to both corporations and the pensions industry. Both FRS17 and IAS19 compel companies to include the market value of their pension assets on their balance sheets, a notion he branded as “simplistic”.
According to Ghiloni, the practice of including current market values is misleading as pension liabilities are spread out over several years. Instead, a smoothing process should be used in calculating liabilities.
In the event of FRS17 and IAS19’s demise, he claimed that the best solution would be to adopt similar provisions to the existing rule SSAP24.
But he added: “Whether they will be maintained or not depends on the level of fuss kicked up.”
So far, FRS17 has been cited as one of the prime factors in the dramatic reduction of DB schemes in the UK.
Consultants William M Mercer has projected that at least 50% of the top 500 companies would have suffered a reduction in net balance sheet assets, had the standard been fully in place.
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