Accounting roundup: FRC wrongly told companies to pay voluntary levy

The UK accounting watchdog has admitted wrongly telling companies to pay a voluntary levy.

The admission from the Financial Reporting Council (FRC) came in a ministerial response to a question posed by Baroness Sharon Bowles, a member of the UK’s House of Lords.

In its 2016/17 levy fact sheet for preparers, the FRC stated that “Companies with a Premium listing on the London Stock Exchange Main Market are required to pay the full levy”.

In response to Baroness Bowles’ question, Lord Henley, parliamentary under-secretary for the Department for Business, Energy and Industrial Strategy, said the word ‘required’ was replaced with ‘requested’ for the 2018-19 fact sheets “to improve clarity”.

The issue emerged in documents released to IPE by the Office for National Statistics (ONS) in connection with the FRC’s status as a public body.

ONS staff noted that it was possible that companies had mistakenly paid the levy in the belief that it was compulsory.

The FRC’s current levy fact sheet explains that the levy is voluntary.

IASB seeks fix for IAS 19 discount rate anomaly

The International Accounting Standards Board (IASB) is seeking to address problems with accounting for pension plans that are linked to an asset return, such as defined contribution (DC) or collective DC (CDC) schemes.

The IASB agreed to conduct outreach on a narrow-scope fix to its pensions accounting rules International Accounting Standard 19 (IAS 19).

Staff explained during the board’s February meeting that the work would focus on accounting for pension benefits under IAS 19 where there is a discrepancy between the cashflows and the discount rate, where the payouts depend on asset returns.

The issue is that discounting back at a double-AA corporate bond rate creates an anomaly because it doesn’t match projected cashflows.

The board said it would look at intorducing a cap on the rate at which cashflows are projected forward so that they do not exceed the discount rate.

Eleven of the board’s 14 members supported the decision.

Staff said they had ruled out looking at higher-of benefits, which also depend on an asset return.

They added that: “If the research establishes that this approach would not be feasible, the staff expects to recommend no work on pensions.”

The IASB opted to allocate pensions to its new research pipeline following its 2015 agenda consultation. The board is currently a year and a quarter into its agenda-setting cycle.

IAS 19 changes could prove problematic for Germany

Recent IAS 19 amendments will be challenging to apply in Germany, according to Thomas Hagemann, the chief actuary for Mercer’s German practice.

The changes deal with the accounting for plan amendments, curtailments and settlements under the standard.

In a briefing note to clients, Hageman warned in particular that the amendments could produce anomalies and a lack of comparability across companies.

He wrote: “[A] very minor settlement can lead to a situation where the obligation must be recalculated for the remainder of the reporting period because the changes to the assumptions have changed the liability to an extent that is no longer insignificant.”

He added: “A small special event could force a recalculation of the expense component for the rest of the accounting period that would otherwise not be permitted.”

His comments follow a similar warning from UK advisers Lane Clark & Peacock.

The IAS 19 amendments take effect from 1 January 2019 with earlier adoption permitted, although the EU has yet to endorse them.

The changes require companies that amend their scheme benefits to recalculate current service cost from the point of change using updated assumptions.

Critics of the change argue that it can produce a higher defined benefit obligation, even though the scheme has cut benefits as a result of using what could be a lower discount rate.