Worries Abound Over Changes to UK Accounting Standards

(March 8, 2010) — The International Accounting Standards Board (IASB) has proposed that companies with defined benefit pension plans shouldn’t expect their schemes’ equities to generate higher returns than lower risk bonds, the Financial Times reported.

“For companies with material investment in equities [through their pension schemes], if adopted, the revised accounting standard would lead to a significant decrease in profit,” said Mercer to the FT. Mercer said $13.1 billion would be slashed from the yearly profits of UK companies following the revisions of the IAS 19 accounting standard. While the average UK pension fund returned 14% last year, the combined shortfall on the UK’s 350 biggest schemes in 2009 was $232 billion, the pension scheme consultancy said.

The FT reported that in 2006, UK pension schemes decreased their equity allocation from 61% to 46%. The proposals signal continued legal and regulatory pressure on pension schemes to decrease their exposure to equities.

The IASB is expected to release the proposals for consultation later this month. Separately, under a G-20 deadline of June 2011, the London-based IASB and the Financial Accounting Standards Board (FASB), based in Norwalk, Connecticut, are set to compete major convergence projects for greater alignment of standards.