FRC set to amend FRS 102 defined benefit pension rules

The Financial Reporting Council (FRC) is consulting on changes to FRS 102 to improve the accounting regime for defined benefit pensions, as well as amendments to FRS 101 to take into account IFRS 17 Insurance Contracts

The FRC exposure draft, FRED 71 Draft amendments to FRS 102 – Multi-employer defined benefit plans, proposes new requirements in FRS 102 for presenting the impact of transition from defined contribution accounting to defined benefit accounting for affected pensions. 

The decision to amend the rules on accounting for multi-employer defined benefit plans is the result of reporting issues with the current framework under FRS 102, with reporters expressing concerns about a lack of clarity over how the report the pension plans, particularly with a view to longer term impacts.

When an entity participates in a multi-employer defined benefit plan and sufficient information is not available to use defined benefit accounting, the entity accounts for the plan as if it were a defined contribution plan.

However, FRS 102 does not specify what an entity has to do to transition to defined benefit accounting when sufficient information is not available.

As a result, the FRC has decided to set new and explicit requirements for how an entity applying FRS 102 shall transition from defined contribution accounting to defined benefit accounting when sufficient information becomes available.

FRS 101

On FRS 101 Reduced Disclosure Framework, the exposure draft, FRED 70 Draft amendments to FRS 101 – 2018/19 cycle, is part of the regular annual review of FRS 101 and brings in changes due to the expected impact of IFRS 17 Insurance Contracts.

FRS 101 requires the application of the recognition and measurement requirements of EU-adopted International Financial Reporting Standards (IFRS) with reduced disclosures.

Unlike accounts that apply IFRS in full, those prepared in accordance with FRS 101 must comply with detailed accounting requirements set out in company law.  Some of these requirements conflict with the requirements of the forthcoming IFRS 17 Insurance Contracts, due to come into effect in 2021.

This FRED proposes amendments to the definition of a ‘qualifying entity’ such that entities that are both required to comply with Schedule 3 to the Regulations (or similar) and have contracts that are within the scope of IFRS 17 may not be qualifying entities.

The FRC consultation proposes that insurance entities will not be permitted to apply FRS 101 if IFRS 17 Insurance Contracts is part of EU‑adopted IFRS.

FRED 70 Draft amendments to FRS 101 – 2018/19 cycle – closing date 30 April 2019 - closing date 30 April 2019

FRED 71 Draft amendments to FRS 102 – Multi-employer defined benefit plans - closing date 31 March 2019

Report by Sara White

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