A group of professional bodies has issued guidance on the implications of Covid-19 for pension scheme financial reports and audit, to help pension scheme auditors to navigate the additional challenges raised by the current pandemic
The new guide is relevant to private sector occupational defined benefit (DB) and defined contribution (DC) trust-based pension schemes in the UK, including hybrid schemes and DC master trusts, applying the pensions SORP.
It covers a wide range of topics including responsibilities for reporting to The Pensions Regulator (TPR) and the impact of the pandemic on the control environment of pension schemes.
There is no relaxation of trustees’ responsibilities under the notifiable events regime and those running DC master trusts must continue to comply with their significant and triggering events duties.
The guidance points out the extent of the impact of the Covid-19 pandemic on the control environment of a scheme will depend on its reporting period end date.
For example, a scheme with a period end date of 31 December 2019 may not have experienced any Covid-19-related impacts on its control environment in the period to that date. However, it may have done subsequently and this may be relevant to elements of its annual report, including the financial statements.
In addition, the guidance looks at the trustees’ report and the chair’s statement; going concern and the trustees’ assessment of going concern; accounting for scheme investments; events after the end of the reporting period; audit issues; and the auditor’s statement about contributions.
It notes that it is likely that more schemes may need to disclose a material uncertainty relating to going concern due to the impact of the Covid-19 pandemic.
There are indications that obtaining asset valuations for periods ending on or after 31 March 2020 will be challenging for some asset classes; for example, illiquid assets such as commercial property or private equity investments.
Where reliable valuations cannot be obtained, trustees and the scheme’s auditor should be discussing the implications for the scheme’s financial statements early in the production process. In these circumstances, the auditor may need to consider alternative audit procedures.
For pension schemes with accounting periods ending on 31 December 2019, the Covid-19 pandemic in 2020 is likely to be a non-adjusting event.
For subsequent reporting dates, schemes will need to judge how much of the impact of the pandemic should be considered to arise from non-adjusting events. This will be highly dependent on the reporting date, and the specific circumstances of the scheme.
Auditors should be considering the impact of the pandemic on all aspects of the audit and communicating with pension scheme trustees about these as appropriate.
The guide has been prepared jointly by ICAEW, ICAS and the Pensions Research Accountants Group (PRAG).
Andrew Penketh, chair of ICAEW pensions sub-committee, said: ‘The coronavirus crisis has brought about new challenges for trustees, accountants and auditors in the preparation and audit of the annual report and accounts of pension schemes.
‘This joint guide will help navigate these challenges so that key issues and accounts disclosures are considered and dealt with in an appropriate and timely way.’
Shona Harvie, chair of the PRAG executive, said: ‘This guidance aims to provide the pensions industry with a joined-up approach to addressing the impact of COVID-19 on pension scheme accounts.
‘In conjunction with this, PRAG will be issuing updated going concern guidance for pension schemes following the recent revision to International Standard on Auditing (ISA) (UK) 570 Going Concern.’
Pensions scheme guidance: Pension scheme reports and financial statements, and related matters in the context of the Covid-19 pandemic