Accounting Standards Board's proposals to amendment to
FRS 17 " Retirement Benefits"

On the 14 June the Charity Commission published an exposure draft of an Update Bulletin that fully updated the Charities SORP for all new accounting standards and abstracts published by the Accounting Standards Board (ASB) since October 2000. This Update Bulletin provides detailed guidance on the reporting and accounting implications of FRS 17 for charities that participate in defined benefit pension schemes. The consultation period for this exposure draft is due to end on 16 September 2002.

Subsequent to our publication of the SORP Update Bulletin the ASB published an exposure draft to consult on whether the transitional arrangements in FRS 17 'Retirement Benefits' should be extended to allow a longer period during which the information required by the standard may be given in the notes rather than in the main financial statements. The purpose of this extension is to allow the ASB to consider possible amendments to the equivalent international standard, IAS 19 "Employee Benefits", certain aspects of which are now scheduled for reconsideration by the International Accounting Standards Board (IASB). The ASB is therefore proposing to defer the full adoption of FRS 17 during this period of planned international discussion.

During this period, however, it is proposed that UK financial statements, including those of charities, would include information prepared in accordance with FRS 17 either in the notes or, where the standard is voluntarily adopted earlier than required, in the financial statements. The full requirements of FRS 17 in terms of accounting for pension costs, assets and liabilities through the primary accounting statements would become standard for accounting periods ending on or after 22 June 2005. The ASB continues to encourage early adoption of all the requirements of FRS 17.

While the ASB emphasises that its proposal reflects no weakening of its view that the UK standard is the best approach to pensions accounting, FRS 17 is, in most respects, consistent with IAS 19. There is, however, a major difference in the treatment of actuarial gains and losses arising in respect of defined benefit schemes. FRS 17 requires these to be recognised, immediately they occur, in the statement of total recognised gains and losses. In contrast, IAS 19 requires them to be included in the profit and loss account, except that they need not be recognised if they fall below a specified ceiling. It also permits any excess to be spread forward over any period up to the remaining working lives of the employees participating in the scheme. It is this aspect of the existing IAS 19 that seems most likely to be the focus of international discussion.

Whilst the ASB's proposals are likely to result in amendments to the SORP Update Bulletin, we have concluded that the current consultation should proceed for the following reasons:

• The Update Bulletin also addresses Appendix 2 of the Charities SORP dealing with all financial reporting standards and UITF abstracts issued or withdrawn by the ASB since October 2000 - not just FRS 17.
• The cost components of defined benefit schemes will still need to be analysed in the accounting notes across the relevant headings of the statement of financial activities. Guidance will be required on how such costs should be allocated and analysed in the notes to the accounts.
• Accounting for pension costs, assets and liabilities within the primary accounting statements has only been deferred and the SORP Committee's views on the allocation of pension costs/assets/and liabilities, particularly to restricted funds, still needs to be tested through consultation. These issues will also be important in building up comparative figures for insertion into primary financial statements in 2005.
• Guidance is needed for those charities that intend to adopt FRS 17 before 22 June 2005.
• The cash flow and operational impact of defined benefit schemes will remain irrespective of accounting recognition of pension assets/liabilities. Guidance is therefore still required on how these issues should be addressed within trustees' annual reports.

The consultation period for the exposure draft of Update Bulletin 1 ends on Monday 16 September 2002.