Pensions accounting consolidation: Three themes from the recent audit season

June 04, 2020

by Brian Peters Financial Reporting for Pensions Leader

Email +44 (0)7803 668075

Many organisations will be looking to take action to de-risk and remove pension obligations from their balance sheet. And now is the prime time for companies to reflect on the themes and challenges we’ve seen from the recent audit season. By looking at the new challenges arising around already complicated issues for multinationals such as data collection, liability calculation and making the right decisions for pension arrangements in a number of countries, organisations have an opportunity to improve their process and position for the next financial year.

With a limited window of time to reflect on these developments, I have summarised the
three key themes shaping the pensions accounting consolidation landscape and examples from organisations putting these into practice.

1. Actuaries and accountants working together

Bringing actuaries and accounting specialists together means getting the right outcome is simpler and more efficient.

I am observing increasing complexity in some of the pension events companies and trustees are executing. The accounting implications of these events are not always obvious. An example of this is a full insured buy-out of the whole pension scheme. Another is where a company demerged one of its businesses whose current and former employees were covered by the same pension scheme as everyone else. What I’ve noticed is companies need both an actuary to do the calculations and advice on how to do the accounting. Having both in place makes the process more efficient.

2. Using collected data to provide insights

Most pension accounting consolidations require the collection of data from multiple territories in a similar format. Some HR and pension functions have started to realise this process can be more than just a compliance exercise as the data collected can be a source of valuable management information.

For one listed company, we produce a management report alongside the annual disclosures under IFRS. This report highlights opportunities to manage pension risk and reduce cash and cost. As a consequence of the data collected, management has initiated a number of actions including moving to defined contribution in the UK and Germany, executing a deferred vested exercise in the US and revising the investment strategy in Ireland. It’s becoming clear that pension accounting consolidation can be more than a compliance exercise and data can unlock valuable insights.

3. Using technology to improve processes

Getting the right technology in place is transforming many pensions processes. In our audit practice, we’ve been using new consolidation technology such as data collection tools.

For one UK private company we worked with, the data collection tools have improved their internal controls as there is full oversight over the information in the process. We’ve also seen how powerful visualisation can be in helping to model different scenarios and economic outcomes to support the budgeting process ahead of a potential future IPO. Technology is really changing how companies interact with their results and ensure compliance with internal control frameworks.

Find out more or get in touch to discuss your approach to accounting consolidation.

by Brian Peters Financial Reporting for Pensions Leader

Email +44 (0)7803 668075