Audit standard FRS17 may have become the accepted measure by which many pension liabilities are calculated, but firms must recognise its flaws before blindly believing the figures it throws up.
Actuarial and consultancy firm Spence & Partners says financial directors need to fully understand and question the results provided to them and make sure they are fully aware of the corporate impact.
There is significant latitude available in the assumptions used. These relate to measures including the assumed discount rate, salary inflation, and price inflation where there is significant variance in published sources of such information.
Equally actuaries take a different view when it comes to issues such as life expectancy and the commutation of tax free cash and again this can result in very different results being reached, depending on who is carrying out the work.
There is no doubt that standards such as FRS17 have a role to play, but company directors and scheme trustees must also be aware that they do not generate black or white results.
The issue is examined more fully in the article How accurate is your FRS17 assessment on the Spence & Partners website.
For further information please contact David Davison at Spence & Partners (www.spenceandpartners.co.uk) on 0141 331 1004.
Issued on behalf of Spence & Partners by Blueprint Media tel 0141 353 1515
Date: Feb ’08