The ASB has just published an exposure draft to consult on whether the transitional arrangements in FRS 17 ‘Retirement Benefits’ should be extended to allow a longer period during which the information required by the standard may be given in the notes rather than in the main financial statements.

This proposal is a direct result of the announcement, at the end of June, that the IASB had added to its agenda a project to reconsider the corresponding international standard, IAS 19 (revised) ‘Employee Benefits’.

It will probably take the IASB some time before it issues proposals. The ASB has therefore decided it should consult now on a potential deferral—in particular recognising that UK listed companies with June year ends must, as FRS 17 presently stands, adopt the standard in full for their interim statements at December 2002. They then face the risk of having to change their accounting a second time when they are required to use IASB standards for their group accounts.

As part of its strategy to effect an orderly transition from existing UK standards to revised standards aligned with IFRSs, and in the light of the IASB’s announcement, the ASB is proposing to defer the full adoption of FRS 17 during the period of the international discussions on IAS 19. An equivalent deferral is proposed in respect of the Financial Reporting Standard for Smaller Entities (FRSSE). During that period, however, UK financial statements would include information prepared in accordance with FRS 17 either in the notes or, where the standard is voluntarily adopted earlier than required, in the financial statements. The ASB continues to encourage early adoption of all the requirements of FRS 17.

The alternative view is that deferral of full adoption of FRS 17 would lead to confusing information in that the use of the previous standard, SSAP 24, would continue to be allowed. SSAP 24 has serious deficiencies. Respondents may therefore take the view that it is unsatisfactory for there to be a further period in which some companies would be accounting for their pension costs in the primary financial statements on the basis of SSAP 24 while providing superior information in the notes on the basis of FRS 17. In this period, also, the primary financial statements of such companies would not be comparable with those of companies that have adopted the full requirements of FRS 17.

The ASB intends, in any event, to consult as soon as possible on the early adoption in the UK of a standard based on whatever the IASB decides.

The ASB is keen to emphasise that its proposal reflects no weakening of its view that the UK standard is the best approach to pensions accounting. FRS 17 is, in most respects, consistent with IAS 19. There is, however, a major difference in the treatment of actuarial gains and losses arising in respect of defined benefit schemes. FRS 17 requires these to be recognised, immediately they occur, in the statement of total recognised gains and losses. In contrast, IAS 19 requires them to be included in the profit and loss account, except that they need not be recognised if they fall below a specified ceiling. It also permits any excess to be spread forward over any period up to the remaining working lives of the employees participating in the scheme. It is this aspect of the existing IAS 19 which seems most likely to be the focus of international discussion.

The ASB adopted its approach of immediate recognition of actuarial gains and losses as:

• it concluded that there is no conceptual basis for not recognising in full the gains and losses that have already occurred;

• immediate recognition permits the balance sheet to reflect, without distortion, the surplus or deficit in the scheme based on the latest actuarial valuation; and

• if gains and losses are to be spread forward, complex and arbitrary rules are needed.

Comments on the exposure draft are invited by 16 September 2002.