XPS Pensions has revealed that the gap between pension obligations reported in companies’ accounts and the long-term funding strategies that drive cash demands is continuing to grow.
The firm's third annual pensions accounting survey - which questioned more than 150 of its clients ranging from £10m to more than £2bn by asset size - also revealed accounting for defined benefit pensions is becoming more complex and timely for companies, including the process of preparing accounts and getting auditor approval.
The firm also noted the increasing complexity in this area could be affected by the coronavirus pandemic in the short to medium term.
In line with the unprecedented market volatility in reaction to the Covid-19 outbreak, XPS noted the value of pension obligations reported in companies' accounts have "generally diverged further away from the long-term funding strategies". This often means clients need to spend additional time managing the expectations of shareholders, who could be seeing large cash demands at the same time as accounting surpluses, it added.
The findings of this year's survey prompted XPS to call for a more streamlined year-end accounting process and wider cooperation between advisory firms and auditors to establish an online tool to assist the process.
XPS head of accounting Simon Reddish said: "Too often I see clients frustrated with the steps required to complete their annual reporting for pension exercise. While the increased auditor testing is welcome, and will increase the quality of reporting, lots of this process need not directly involve the client's senior finance team.
"We believe that the industry should be working closely with auditors to create an agreed, centralised process that puts clients first and meets the Financial Reporting Council's requirements - this is the real key to a seamless year-end."
Senior consultant Vicky Randhawa added: "Recent market disruption has highlighted how volatile accounting positions can be. An accounting surplus emerging at 31 March 2020 could have easily turned into a deficit over the following weeks in April. At the same time, funding positions have moved in the opposite direction to accounting, exacerbating the accounting gap."
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