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FRED 55: Draft Amendments to FRS 102 — Pension Obligations

Background

Financial Reporting Exposure Draft (FRED 55) was published by the Financial Reporting Council (FRC) in August 2014 and proposed amendments to FRS 102 to clarify aspects of the accounting for defined benefit pension plans under FRS 102.  In light of the Financial Reporting Review Panel conclusion that under IFRS a schedule of contributions (prepared under section 227 of the Pensions Act 2004) between a company and the company’s pension trustee constitutes a minimum funding requirement under IFRIC 14 IAS 19 – The Limit On a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’, the FRC received enquiries about the accounting under FRS 102.  Due to the diversity of views on this matter, and because the potential implications for an entity's financial statements could be significant, the FRC decided to address the matter outside of its intended three-yearly review cycle.

Project milestones

Financial Reporting Exposure Draft (FRED 55) was published by the Financial Reporting Council (FRC) in August 2014.

In February 2015, the FRC published 'Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland– pension obligations’. 

The amendments clarify that entities reporting under FRS 102 should measure their obligations using the projected unit credit method and should not recognise additional liabilities to reflect funding valuations or agreements to fund deficits. Entities would therefore not need to recognise additional liabilities for a schedule of contributions, even if such an agreement would otherwise be considered onerous but would need to disclose the future payments to fund a deficit that have been committed.  This contrasts with the position for companies reporting under IFRSs, which may have to recognise an additional liability for such obligations in some circumstances.

The amendments also clarify that the effect of not recognising an irrecoverable surplus in a defined benefit plan is shown in other comprehensive income, rather than profit or loss. 

Current status of the project

'Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland– pension obligations’ was published by the FRC in February 2015.  The amendments have the same effective date as the existing standard i.e. periods commencing on or after 1 January 2015. 

  

 

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