New pension proposals released by IASB - Proposals will hit profits but provide clarity

New accounting rules which would force companies to be upfront about their pension liabilities, have been released.


The International Accounting Standards Board today released draft pensions rules which force companies to recognise more of their pension costs in their profit and loss statements.

The measures will disaggregate pension liabilities into a service, interest and remasurement costs.

Under the proposals companies pensions will have a much greater impact on profits - the key metric analysts use when assessing a company’s performance. Companies will also no longer be able to defer their recognition of gains and losses arising from pension schemes.

The proposals aim to make the accounting more consistent among companies, and better represent the underlying economics of pension transactions.

But they are being fought by some however who believe the impact will distort company profits.

“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 the 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