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Comments from ACCA
September 2006

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the exposure draft (ED) on the above subject. The ED was considered at a recent meeting of ACCA’s Financial Reporting Committee and I am writing to give you their views.

ACCA’s overall views

We do not support the proposals to develop a Reporting Statement on this subject or to replace the requirements of FRS17 with those of IAS19 at this time.

In our letter to the ASB of 31 July on the subject of the future reporting requirements for UK companies we supported the proposals of the ASB to extend the use of IFRS to all public interest entities and to subsidiaries in groups preparing IFRS accounts. We proposed for all other UK companies to replace existing UK standards (including the FRSSE) with a standard based on the IASB’s SME standard (IFRS for SME) when available.

It seems therefore inappropriate for the majority of UK companies affected to have to make a change in reporting requirements in this area at this point, only for there to be a further change when they move from the existing UK standards to the IFRS for SME. We accept that there is less of an issue for the few companies (under the ASB’s tentative proposals) that will change from UK standards to full IFRS.

Of greater concern to us is the development of the Reporting Statement (RS). We do not support the development of this sort of document which in effect supplements the requirements of accounting standards. If there are significant shortcomings in the disclosures of IAS19 then the best route would be for these to be submitted to the IASB for inclusion in any new or amended standard on the subject.

We are concerned that significant extra disclosures beyond those required in IFRS are being imposed on UK companies.

The status of the RS is not very clear to us. Is it to be applied by UK companies using IFRS, or is its scope restricted to those following FRS17 (as the cross references in it would suggest)? We are unclear whether the intention is that companies should specifically refer in their financial statements to the extent of their compliance with this non-mandatory RS.

Adding a new layer of regulation with a different status is not helpful. The status of, and degree of compliance required with, accounting standards and official UITF interpretations are well understood. The authority of best practice statements issued by the ASB is less well established, in relation to the requirement for a true and fair view for example. We observe that best practice ASB statements have up to now

• been directed principally to listed companies
  
• not been concerned with the financial statements themselves, but other forms of reporting (interim reports, preliminary announcements and the OFR)

The record of compliance by listed companies with the OFR best practice statement for example has fallen well short of 100%. ASB need to recognise that the pressures on privately-held companies for compliance with such statements are likely to be considerably less compared to publicly listed entities.

ACCA’s responses to the questions for comment raised by ASB

Q1. Proposed amendment to FRS17 retirement benefits

On balance we do not agree with this proposal. We accept that it progresses convergence with IFRS. As noted above, however, we consider it risks giving the majority of companies applying FRS17 two rounds of changes – these proposals and then further changes when the UK applies the IFRS for SME. There are some significant disclosures that would be lost by these proposals, especially the expected asset returns, and the date and status of the actuarial valuation.

Q2. Scheme liabilities calculated on a buy-out basis

In our view the buy out basis generally should not be required. It would only be relevant where the employer is contemplating a scheme closure. The financial statements already include an FRS17 valuation and information about the funding basis. To include this further valuation basis might be more confusing than helpful, and would otherwise imply that the details of the basis and assumptions of the buy-out basis would have to be included to make it useful.

Q3. Pension Protection Fund Levy

We agree that this should not be a disclosure requirement.

Q4. Regulatory Funding

We agree that the level of compensation payments on insolvency is not a matter which need be disclosed in the employer’s financial statements.

Q5. Effective date

We do not agree with the application of any changes to FRS17 from 31 December 2006. This amounts effectively to retrospective application. Any changes in accounting standards should generally give a year from publication to compulsory application. We see no exceptional reasons in this case why preparers should not be given fair notice of the change.

Q6. Regulatory impact assessment

The assessment of costs as set out in this question understates the impact of the proposals. Any change in requirements means that preparers and auditors have to understand, assess the impact of the changes on the individual entity involved and work out the appropriate application. The costs of change in accounting standards are not restricted to the costs of data collection.

The disclosure requirements of FRS17 are all restated. So even if the main part of the information may already be available to the company, the assessment process has to be gone through. Similar considerations apply with the draft Reporting Statement which raises a series of issues about compliance that we have noted above, as well as the need to consider the specific disclosures that would meet the broadly stated objectives set out by ASB.

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