Abstract
Accounting for the costs of pensions in the financial statements of employer companies presents one of the most difficult challenges in the whole field of financial reporting. The amounts involved are large, the timescale is long, the estimation process is complex and involves many areas of uncertainty which have to be made the subject of assumptions; in addition the choice of matching principles to be applied is complicated and open to debate.
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References
Christopher J. Napier, Accounting for pension costs — An interim report, ASC, February 1982.
Ibid., para. 23.
Christopher J. Napier, Accounting for the Cost of Pensions, ICAEW, 1983.
ED 32, The disclosure of pension information in company accounts, May 1983.
Ibid., paragraph 38.
Accounting for pension costs, ASC, November 1984.
ED 39, Accounting for pension costs, May 1986.
SSAP 24, Accounting for pension costs, May 1988.
Ibid., para. 75.
TR756, Statement by the Accounting Standards Committee on the application of the principles of SSAP 24 ‘Accounting for pension costs’ to other post-retirement benefits, July 1989.
SSAP 24, para. 16.
Ibid., para. 12.
Ibid., para. 78.
Ibid., para. 87.
Or alternatively interest on the underlying surplus in the scheme, depending on how the variations are calculated — see 4.1.
SSAP 24, para. 20.
Ibid., para. 21.
ED 39, Accounting for pension costs, ASC, May 1986, Appendix 2, Example 2.
SSAP 24, para. 81.
Ibid.
ICTA 1988 Ss. 601 – 603 and Schedule 22.
SSAP 24, para. 83.
Ibid., para. 82.
Ibid., para. 92.
As reported in the survey published in Spring 1992 by William M. Mercer Fraser Limited, entitled SSAP 24 — Survey of company pension disclosures 1991.
Balance sheet classification of pension assets, Paper Seven, Pension Research Accountants Group, March 1990
UITF Abstract 4, Presentation of long-term debtors in current assets, July 1992.
SSAP 24, para. 88.
GN 17: Accounting for pension costs under SSAP 24, Institute and Faculty of Actuaries, April 1991, para. 28.
SSAP 24, para. 48. Arguably, this requirement, and those referred to in footnotes 31 and 34 below, are not mandatory because they appear only in the Explanatory Note of SSAP 24, and not in the Standard section itself. However, they should nonetheless be disclosed if it is sufficiently important to an understanding of the overall position.
Ibid., para. 18.
The guidance issued by the actuarial profession indicates that this should be calculated using the Projected Accrued Benefit Method (GN 17, para. 30).
GN 17, para. 31 explains that part of this surplus or deficiency will be attributable to the use of the Projected Accrued Benefit Method for the previous disclosure unless the method used for funding is the Projected Unit method or the Attained Age method, and this fact should be explained.
SSAP 24, para. 49.
Ibid., para. 92.
ED 32, The disclosure of pension information in company accounts, ASC, May 1983.
SSAP 24, para. 14.
Pension Fund Terminology — Specimen descriptions of commonly used valuation methods, The Institute of Actuaries and The Faculty of Actuaries, May 1986.
GN 17, para. 17.
As reported in the Mercer Fraser survey.
GN 17, para. 18.
Ibid., para. 20.
Pension Fund Terminology — Specimen descriptions of commonly used valuation methods.
GN 17, para. 19.
Pension Fund Terminology — Specimen descriptions of commonly used valuation methods.
GN 17, para. 16.
According to the Mercer Fraser survey quoted above, 13% of companies surveyed used it.
Pension Fund Terminology — Specimen descriptions of commonly used valuation methods.
GN 17, para. 15.
SSAP 24, para. 79.
GN 17, para. 24
Auditing Practices Committee, August 1987.
It is, however, explicitly recognised as being the third component of cost in GN 17, para. 12. and by the ICAEW in FRAG 10/92, Review, for major practical problems, of SSAP 24, paras. 26 et seq.
FRAG 10/92, para. 31.
SSAP 24, para. 23.
Ibid., para. 80.
FRAG 10/92, para. 42.
According to the Mercer Fraser survey, only 20 out of 201 companies made the disclosure; of those 17 used the percentage of pay method, 2 used the straight line method and 1 used the mortgage method.
SSAP 24, para. 91.
SSAP 15, Accounting for deferred tax, Revised 1985, paras 24 – 36.
In practice, the balance sheet figure will always tend towards the surplus or deficit in the fund, so it will only tend towards zero if the fund itself will do so.
Pension Research Accountants Group discussion paper, Accounting for Pension Costs and Deferred Tax, December 1989.
TR794 — The relationship between SSAP 24 and SSAP 15 (Revised), ICAEW, June 1990
FRAG 10/92, paras. 60 and 61.
UITF Information Sheet No. 4, July 1992.
PRAG discussion paper, Accounting for Pension Costs and Deferred Tax, para. 9.
Ibid.
ED 53, Fair value in the context of acquisition accounting, ASC, July 1990, paras. 76 and 77.
CA 85, Sch. 4, para. 50(4).
Ibid., para. 50(6).
ED 32, para. 40.
CA 85, Sch. 4, para. 56(4).
Ibid., para. 94(2).
Statement of Intent, Comparability of Financial Statements, IASC, July 1990.
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© 1992 Ernst & Young
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Davies, M., Paterson, R., Wilson, A. (1992). Pension costs. In: UK Gaap. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-12998-0_17
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