IASB member defends pension plans

A leading accounting standard setter has defended new pension reforms as providing a “fairer and more transparent” model for reporting costs.

Stephen Cooper, member of the International Accounting Standards Board, said new pension reforms would not change how pensions are measured, only how they are represented.

He made the comments as analysts stoked fears the changes could add billions of pounds in losses to large companies like British Airways.

“It is true that for some companies this could lead to a higher cost reported in profit or loss and a lower cost - or higher gains - being reported as part of other comprehensive income, however we believe the changes will provide a fairer and more transparent presentation of pension costs and risks," he said.

"As we are not changing the measurement basis for pension assets and liabilities then, apart from the effect of removing the corridor method, the aggregate pension cost reported in the statement of comprehensive income is unchanged."

The corridor method allows gains and losses from pension funds to be deferred. Cooper said at the moment there is no clarity about how different components of pension plans are presented.

"For instance, costs can be recognized in different categories in the statement of comprehensive income. We propose clear requirements where and how the different components have to be presented in the statement of comprehensive income,” he said.

The proposals are being fought by some who believe the impact will distort company balance sheets.

“The proposals would radically change the way organisations are required to account for their pension costs in company accounts and would hit the profits of companies with UK or overseas defined benefits pension schemes,” said Brian Peters, partner with PwC.

“A company with a £2bn pension scheme would typically see reported pension costs rise by about £25m a year.”

Big Four auditor KPMG said yesterday proposals are likely to attract controversy but also add clarity to accounts and limit the use of off-balance sheet accounting treatment.

“In proposing a presentation solution that keeps the resultant volatility out of net income the Board has tried to be responsive to concerns about this important performance measure otherwise being undermined,” Lynn Pearcy, KPMG’s global IFRS employee benefits standards leader said.