FRC proposes consistent fair value categorisations for pension scheme accounts
Potential differences in the categorisation of pension scheme assets will come to an end if proposals from the Financial Reporting Council (FRC) are implemented. The proposals are intended to bring the UK rules governing pension scheme accounts, in Financial Reporting Standard 102 (FRS102), closer into line with international standards.
The consultation, called FRED 62, proposes changes to the fair value hierarchy in FRS102 (see Pensions Bulletin 2015/28), which requires pension schemes to classify their financial instruments according to how they are valued.
The adjustments will bring the fair value hierarchy into line with the equivalent under the corresponding international accounting standard (IFRS 13). This hierarchy has three levels. Level one is for assets with a quoted price, level two for assets whose values are estimated using market data, and level three for assets for which no market data is available.
The changes are being proposed now in order to reduce the cost of compliance with accounting standards and to aid comparability. They are due to come into effect for accounting periods beginning on or after 1 January 2017, though earlier adoption is permitted.
The consultation is open until 31 January 2016.
Comment
Pension schemes preparing their first set of accounts under FRS102, which applies for the first time for accounting years beginning from 1 January 2015, face proposed changes to the rules even before they are implemented. Nevertheless this is a welcome consultation removing an unnecessary inconsistency between UK and international standards.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
