FRC proposes amendments to FRS102 to address confusion

Exposure draft confirms schedule of contributions will not need to be recognised as additional liability under accounting standard FRS102.

The Financial Reporting Council (FRC) has today issued 'FRED 55 Draft Amendments to FRS102 – Pension Obligations'.  The exposure draft, if implemented, would provide welcome clarification on some of the issues raised over the application of FRS102 before the accounting standard becomes mandatory.

The FRC had issued a Press Notice in October 2013, focussed on accounting in accordance with EU-adopted IFRS standards for a ‘schedule of contributions’ payable by an entity to a defined benefit pension plan.  The FRC conduct committee confirmed that such a schedule should be included as a liability on the balance sheet.  Some commentators had suggested that similar treatment might apply under FRS102.

Due to the potentially significant impact on an entity’s financial statements, the FRC has addressed these concerns outside of its intended three-yearly review cycle for FRS102.  It proposes to confirm that “for entities already recognising assets or liabilities for defined benefit plans in accordance with FRS102, no additional liabilities need be recognised in respect of a ‘schedule of contributions’…” and that “the effect of restricting the recognition of a surplus in a defined benefit plan, where the surplus is not recoverable, shall be recognised in other comprehensive income, rather than profit or loss”, which remains consistent with current practice.

The FRC requests comments on all aspects of the draft standard by 21 November 2014.  It expects to issue the final amendments to FRS102 in early 2015 and these will apply to accounting periods beginning on or after 1 January 2015.