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Accounting
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| Accounting |
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See JER article in FTfm, "Clearer view of pension costs in the offing" (Feb 18th 2008)
See JER FT letter "FRS 17 can open pension truths" (Dec 23 2003)
See the note from the IASB on pensions. (March 2003) |
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The opponents of FRS 17 have lost the battle. Along the way FRS 17 supporters included the Society of Investment Professionals,UBS, and Patience Wheatcroft in The Times, as well as my FT letter from February 2002. The March 2003 Actuary also had "FRS 17 – an equity analyst’s perspective".
The Enron scandal was a godsend for the advocates of accounting transparency and in February 2002 Lex wrote about FRS 17, "After weeks in which accountants and accounting standards have been in the spotlight for not revealing enough, along comes an accounting standard that is catching flak for revealing too much."
Boots had been a big supporter of the ASB on pensions, see "Response to ASB Discussion Paper on Pensions" (October 1998)and became the first FTSE 100 company to produce FRS 17 numbers, as of March 2001, when the pension fund transition was about 75% complete.
The 2001 Boots Annual Report said, " We welcome the publication of FRS 17….. which introduces valuable consistency and transparency into a complex area of financial reporting".
Many people thought Boots’ move to bonds had been prompted by FRS 17. As always, I tried to set the record straight in an FT letter in January 2002.
Since I was a consultant to the ASB on pensions (see my early discussion with the ASB in October 1998 and interview on the "Today Programme" in November 2000) I could be accused of bias in favour of FRS 17. I don’t think it is perfect - Jon Exley highlights some of its shortcomings in the Actuary , plus a bit from me. However, I still pinch myself that the ASB got as far as it did.
By June 2002 all UK companies had reported under the first stage of FRS 17, with the numbers making uncomfortable reading. It is worth pointing out BP’s position, as the largest UK company "Equity exposure hits BP pension fund" and "The world of pension fund accounting". By December 2002 BP’s FRS 17 deficit clocked in at about $9.7bn pre-tax "BP pensions".
UBS has produced a series of FRS 17 papers, including November 2001 "UK pensions following FRS 17" and January 2003, with the subtitle, "The pain gets worse".
The pension baton has been passed from the ASB to the IASB whose Chairman is, of course, the same Sir David Tweedie who steered FRS 17 through the ASB. He has a rare combination of intellect, moral passion and political skills.
Although the US has not had FRS 17 to fuel its pensions debate, the inadequacies of US pension accounting have received much coverage, particularly the "expected return on assets" component in the P & L. Philip Coggan wrote "On the edge of a credibility gap" in September 2002 and the FT also had "A forest clearing" and "US pensions train risks running out of gravy". With increased co-operation between FASB & IASB the September 2002 FT headline was "US prepare for revolution in accounting standards".
The closer co-operation between the FASB & the IASB was underlined by FT in April, including an interview, with Robert Herz, the FASB Chairman, and a superb Martin Wolf Leader, advocating transparent pensions accounting.
Also read Zvi Bodie, Robert Merton and Robert Kaplan’s March 2003 article in Harvard Business Review on a related topic "For the Last Time: Stock options are an Expense" (I was a consultant to the IASB on accounting for options).
The IASB is moving forward on pensions with plans for something more radical than FRS 17 see the latest from March 2003. Also earlier comments "IASB to curb inflated pension forecasting" and "Sting in the tail" (both FT). John Plender in February 2002 comments on "The mighty bean-counter. New standards for pensions accounting will transform Europe’s financial landscape". Don’t say you haven’t been warned…
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Updated: 28/6/2010