FRC activities related to SORPs
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Published: 1 December 2014
On November 25th, the Pensions Research Accountants Group (PRAG) published a Statement of Recommended Practice (SORP) for the preparation of accounts of pension funds. SORPs are sector-driven recommendations on accounting practices, supplementing accounting standards and other legal and regulatory requirements in light of the special factors prevailing or transactions undertaken in that sector.
PRAG is an independent research group for the development and exchange of ideas in the pension field. The FRC does not issue SORPs but it must confirm that a SORP does not contain any fundamental points of principle that conflict with accounting practice or standards. The FRC also approves the SORP making bodies.
Trustworthy Information
The FRC undertakes a wide range of activities that affect pension schemes and which promote trustworthy information.
We set the UK GAAP Standard, FRS 102, which provides succinct accounting and reporting requirements for unlisted entities. It gives guidance on how pension schemes should produce their financial reports. FRS 102 also requires the entity that is legally responsible for a group pension plan to recognise the entire net defined benefit cost in its individual financial statements.
A major area of work affecting pensions is actuarial policy. Here we set the technical actuarial standards that actuaries must follow and the bar for the quality of information provided by actuaries.
In 2013, the FRC established the Joint Forum on Actuarial Standards (JFAR) with the IFoA, the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and the Pensions Regulator (tPR). The JFAR is a unique collaboration between regulators to co-ordinate, within the context of its members’ objectives, the identification of and response to public interest risks to which actuarial work is relevant. The forum has recently published a consultation paper that identifies a number of these risk areas entitled, ‘The Joint Forum on Actuarial Standards: a Risk Perspective’. This paper seeks input on a range of risks including those relating to pension schemes.
In 2013, the FRC established the Joint Forum on Actuarial Standards (JFAR) with the IFoA, the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and the Pensions Regulator (tPR). The JFAR is a unique collaboration between regulators to co-ordinate, within the context of its members’ objectives, the identification of and response to public interest risks to which actuarial work is relevant. The forum has recently published a consultation paper that identifies a number of these risk areas entitled, ‘The Joint Forum on Actuarial Standards: a Risk Perspective’. This paper seeks input on a range of risks including those relating to pension schemes.
Through the UK Corporate Governance Code and the Stewardship Code, which are both set by the FRC, the Boards of UK companies are encouraged to focus on the needs of their long-term investors including disclosure of strategic risks. Likewise, investors (and their representatives) are encouraged to engage in meaningful dialogue with Boards. Pension schemes, which are sometimes larger than the company itself, can affect profit more than any other aspect of the company’s finances. Knowing that the board is managing and mitigating risks relating to pensions is important to investors.
Pension funds are asset owners and we encourage them to be signatories to the Stewardship Code. Currently the Code has about 300 signatories, with over 60 of them being asset owners. Asset owners can sign up to the Stewardship Code even if they are not necessarily handling investments on a day-to-day basis, but delegate this management to asset managers. If they do this, they should make this distinction clear and monitor and follow up with their asset managers to check what is being done in their name.
We also specify methods and assumptions used by insurance companies and pension schemes to calculate the projected pensions shown on annual statements. Many millions of these statements are issued each year to members of pension schemes.
We also specify methods and assumptions used by insurance companies and pension schemes to calculate the projected pensions shown on annual statements. Many millions of these statements are issued each year to members of pension schemes.
Trustworthy Behaviour
In promoting trustworthy information we also undertake a variety of work which encourages trustworthy behaviour.
The FRC has published Audit of Occupational Pension Schemes in the United Kingdom, more commonly known as Practice Note 15. This purpose of the Practice Note is to assist auditors in applying auditing standards to particular circumstances when auditing a pension scheme. In its role monitoring the quality of the audits of listed and other major public interest entities, the FRC’s Audit Quality Review team inspects the audits of some of the largest private pension schemes.
The FRC has published Audit of Occupational Pension Schemes in the United Kingdom, more commonly known as Practice Note 15. This purpose of the Practice Note is to assist auditors in applying auditing standards to particular circumstances when auditing a pension scheme. In its role monitoring the quality of the audits of listed and other major public interest entities, the FRC’s Audit Quality Review team inspects the audits of some of the largest private pension schemes.
Returning to actuarial work, we monitors the IFoA’s regulatory activities to ensure they are conducted effectively. Through the Conduct Division, disciplinary action can also be undertaken against individual actuaries. The FRC’s Corporate Reporting Review team reviews the annual reports of listed companies and identifies issues regarding pension schemes which, where relevant, will include assessment of the advocacy of their disclosures of pension obligation.
The FRC’s objective is to promote and encourage the provision of reliable, trustworthy information that can be relied upon with justifiable confidence by investors. We wish to advocate professional, transparent behaviour by auditors, accountants and actuaries. Focusing on pension schemes ensures security in the financial markets for the millions of UK pensioners and savers and the many investors and investor groups who allocate capital into the economy.