The ED sets out proposals for accounting and reporting by pension schemes in the context of the new accounting framework introduced by Financial Reporting Standard (FRS) 102 applicable in the UK and Republic of Ireland for financial years beginning on or after 1 January 2015.  The ED also updates the 2007 SORP to include the requirements of new regulations and changes in the pension industry since the 2007 SORP. 

The ICAEW have raised concern over the level of investment risk disclosures for pooled investment vehicles set out in section 3.16 of the ED.  The ICAEW comments that they have “concerns that the depth of detail proposed for investment risk disclosures for pooled investment vehicles set out in section 3.16 of the draft SORP could be expensive to provide with little or no increase in usefulness for the members of many schemes”.  Concerns are also expressed over the “cost of obtaining and making” these disclosures with the ICAEW indicating that “it is important that the SORP does not gold plate the requirements of FRS 102 itself”.  Another major point identified by the ICAEW is that they do not agree with the approach in the ED to be used to assess the risks attached to a pooled investment vehicle.  The ED states that this should depend on the trustees’ intentions in holding the investment; however the ICAEW comments that “we do not agree that the purpose of an investment affects the actual risks that the investor is exposed to simply by holding that investment”. 

Other significant comments of the ICAEW are made in response to particular issues raised in the invitation to comment and include:

• Concerns over paragraph 3.12.22 of the ED.  This states that, if an annuity value determined in accordance with FRS 102 is considered insignificant in relation to the Statement of Net Assets of the scheme and the costs of obtaining it outweigh the benefits of including the value, the annuity is not valued in the Statement, and a note to this effect is included in the financial statements.  The ICAEW comments that “we are not convinced that it is appropriate for the SORP to use cost/benefit considerations as a basis for non-disclosure of ‘insignificant’ amounts”.  The ICAEW highlights that “this statement is meaningless and should be omitted” unless further guidance to allow trustees to assess what the ‘benefits’ are is provided in the SORP.
• Commenting that the SORP should not prescribe how to calculate the fair value of annuities which is the present value of the related obligation.  The ICAEW indicates that the SORP should “allow trustees to exercise their judgement as to the most suitable basis”.
• A recommendation for additional illustrative examples in the SORP “to avoid inappropriate boilerplate presentations or the assumption that other formats are not allowed”.

The ACCA “mainly concurs with the content in the proposed SORP” and are of the view that the proposed SORP, “on the whole”, “meets PRAG’s objectives of not extending reporting and disclosure requirements beyond those required by FRS 102 and best practice”.  The ACCA also comments that although the SORP reproduces parts of FRS 102, “this may be welcomed by preparers and users who find some disadvantages in the brevity of content in FRS 102”.  ACCA would like greater clarity in the proposed SORP by highlighting its recommended accounting practice and encourages PRAG “to finalise the revised SORP as soon as is practicable”. 

Other significant comments of the ACCA, some of which are similar to those raised by the ICAEW, are made in response to particular issues raised in the invitation to comment including:

• Concerns over paragraph 3.12.22.  The ACCA indicates that “we have doubts that para 3.12.22 of the proposed SORP contains guidance sufficient to achieve consistency between reporting schemes”.  
• That the level of disclosure required by paragraphs 3.16 “will consequently require additional information to be obtained, resulting in extra time and costs”.
• That, in respect of the illustrative financial statements in Appendix 1, it would be helpful “to indicate the level of materiality applied in the illustrative financial statements and how it is applied”.

Click for:

• ICAEW full comment letter (link to ICAEW website).
• ACCA press release (link to ACCA website).
• ACCA full comment letter (link to ACCA website).
• UK Accounting Plus news item on the new draft SORP for pension schemes.
• UK Accounting Plus ‘SORPS and New UK GAAP’ project page.