Huge profit & loss volatility and inconsistency in accounting would arise from proposed changes to pensions accounting

Published at 10:10 AM on 12 February 2009

Proposed amendments that would radically change the way organisations are required to express their pension schemes in company accounts should be consistent with the way other volatile assets and liabilities are accounted for, according to PricewaterhouseCoopers LLP (PwC).

The planned change would mean all gains or losses in the pension scheme, for example, daily movements in equity market, would go through the profit and loss giving rise to huge volatility. Currently, the vast majority of companies put these through the SORIE or spread the impact over time.

Brian Peters, partner, PricewaterhouseCoopers LLP, commented:

"The proposed changes would mean company’s profits could show huge variance from year-to-year, regardless of trading performance. 2007 profits for the FTSE20 would have been £8 billion higher if the planned pension accounting changes had been in force two years ago.

“There is no point imposing a technically robust solution if it is only applicable to pensions and does not include other volatile assets, such as property. We are not opposed to the amendment but the investor community and businesses alike need consistency to make informed decisions. While the proposed changes are unlikely to be implemented for three or four years, account users should ensure they communicate their views when the proposals reach consultation - otherwise the resulting changes may not be fit for purpose by which point it will be too late to debate.

“This is all about transparency – some people think transparency is a bad thing because it affects confidence but without it effective business decision making is jeopardised.”

PwC plans to respond to the proposed amendments when the exposure draft is made available.



For more information contact:

Lydia Ruffles
Financial Services, PR Manager, PwC 
Tel:+44 (0)20 7212 1798 
Mobile:07966 319 780 
 

Brian Peters
partner, PricewaterhouseCoopers LLP 
Tel:+44 (0)20 7212 3353 
Mobile:+44 (0)7803 668 075 

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