These narrow scope amendments address a problem with the current accounting rules relating to financial reporting on pensions, which has created a lack of consistency in the way companies report the impact of an employer’s transition from defined contribution accounting to defined benefit accounting; and how it is presented in other comprehensive income (OCI).

There were differences of opinion over how related requirements of FRS 102 should be interpreted and applied in such circumstances. This led to differences in accounting practice by employers participating in the same multi-employer defined benefit plan causing confusion for users of financial statements.

The amendments to Section 28 Employee Benefits require the difference between any liability for the contributions payable arising from an agreement to fund a deficit and the net defined benefit liability recognised when applying defined benefit accounting to be recognised in OCI.

Previously, an entity that applied defined contribution accounting to the pension plan and had entered into an agreement that determines how it would fund a deficit had to recognise a liability for the contributions payable arising from that agreement.

This amendment does not affect the requirement to recognise the relevant liability (or asset) in relation to the plan.

It also takes into account the fluid nature of pension reporting, noting that ‘sufficient information could become available at any time; it will not necessarily become available at the start of a reporting period, and therefore the accounting needs to address the possibility that the transition may take place part way through a reporting period’.

In terms of the timing of the reporting, if there is a transition during the financial year, the FRC confirmed that ‘the change in accounting shall take place from that date, which may not be the first day of a reporting period, in order that the benefits to users of defined benefit accounting are not delayed’.

There will be no changes to disclosure requirements as FRS 102 includes a number relevant to the transition from defined contribution to defined benefit accounting. These cover accounting policies, significant judgments, defined benefit plans, amounts to be recognised in OCI and general requirements to provide information that is relevant to an understanding of the financial statements.

The amendments are effective for accounting periods beginning on or after 1 January 2020, with early application permitted.

Amendments to FRS 102 Multi-employer defined benefit plans issued 24 May 2019

Sara White