A recently closed IASB consultation on IAS19 could single out pension schemes and exaggerate their volatility above other liabilities such as debt says Hewitt.
Hewitt says however that it does accept the proposed removal of deferred recognition of investment gains or losses on the balance sheet, which it says is misleading.
The IASB is expected to report back on the consultation findings in the second half of 2009.
Simon Robinson, pension consultant at Hewitt says: “We recognise that there are flaws in the current IAS 19 and welcome some of the proposed changes, such as However, we are concerned that the new proposals single out pension schemes for particular attention, increasing comparative volatility.
“We are supportive of transparent financial reporting and firmly believe all liabilities should be calculated using a consistent approach, providing a true picture of the company’s total financial risk. In the current economic environment this is particularly important. Mark-to-market accounting, which is based on the current ‘market value’, is an informative method of valuing liabilities but isn’t applied to all corporate liabilities.
“The IASB needs to address the wider accounting framework to correct this discrepancy. If it doesn’t, pension schemes will appear riskier than similar corporate liabilities, leading to companies focusing unnecessarily on this perceived riskiness. Companies have already been moving from DB to DC schemes and these proposals could further increase the rate of migration.”
