UK - A code of practice to tackle a legal grey area over FRS17 is being planned by the Institute of Chartered Accountants for England and Wales (ICAEW).
The ICAEW has held top level talks with the Accounting Standards Board (ASB) over the problem which has been highlighted by actuaries and accountants. They pointed out that quoted companies currently face a dilemma over whether to pay a dividend to shareholders when a company’s profit is cancelled by a deficit on its pension scheme.
ICAEW's head of financial reporting, Nigel Sleigh-Johnson, said there was a legal grey area both for companies fully implementing FRS17, and for those who merely make a disclosure in the notes to the accounts between now and June 2003, when full disclosure becomes compulsory.
Bacon & Woodrow partner Martin Lowes said the ASB has not ruled on which action a company should take and has left a final decision up to companies. He said: “The danger with a grey area like that is the auditors will play safe, so they will assume that a deficit restricts a dividend unless someone proves otherwise by giving them a legal opinion.”
Lowes warned: “If the directors go ahead and pay a dividend when the auditors cannot condone it, they are legally at risk if something goes wrong later.”
Trevor Jones, director of pensions at the Six Continents Pension Plan, said the actions of engineering firm Eliza Tinsley – which cut its annual dividend and diverted money to increase its pension contributions after its scheme fell into deficit – was the logical response to FRS17.
But he also pointed out that temporary phenomena – for example, the stock market plunge following the September 11 terrorist attacks on the US – could have a disproportionate impact on assets. To illustrate this point, he said his fund had recorded a tiny deficit at the end of September, but it was now back in surplus.
* Six Continents' pension plan has cancelled plans to review its current manager line-up - due to market volatility.
By David Rowley
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