On 25 November 2014 a revised version of The Statement of Recommended Practice (SORP), Financial Reports of Pension Schemes was released. This was due to the Financial Reporting Council (FRC) issuing FRS102, the Financial Reporting Standard applicable in the UK and Ireland.
The revised SORP will apply to accounting periods beginning on or after 1 January 2015.
The most significant changes surround the following areas;
Valuation of annuities.
FRS 102 removes the exemption that currently exists to allow individual annuity policies to be valued at nil. The SORP recommends
- The valuation basis adopted should be disclosed in the financial statements
- The valuation is carried out by a suitably qualified person or organisation and this person or organisation is disclosed in the financial statements; and
- The nature of benefits covered by the annuity and any collateral arrangements in place are disclosed in the financial statements.
Investments fair value determination.
FRS 102 contains a requirement to analyse investments according to a tiered valuation hierarchy and to the ease with which a market valuation is obtained for the investment. The SORP recommends that the above disclosure is made by class of investment disclosed on the face of the Statement of Net Assets.
Investment risk disclosure.
The key additional disclosures relate to investment risk disclosures for both defined benefit (DB) and defined contribution (DC) schemes. Trustees will be required to explain the nature and extent of investment risks, quantify the risk exposures, explain how they arise and set out their policies for risk management.
Significant thought should now be given as to how the requirements of the revised SORP will impact on the preparation of scheme accounts both from a process and cost perspective. The additional work should not be underestimated and consideration should be given to the fact that comparatives for the new disclosures will be required.
Action should be taken now to liaise with advisers and investment managers to ensure the additional information required by the revised SORP can be provided in a useable format and in a timely manner to ensure that audited accounts can continue to be produced in line with the legal timescales.