The Financial Reporting Council is consulting on changes to the reporting standard that will govern how charities treat their defined benefit pension liability in their accounts when they are part of a multi-employer scheme.
If accepted, the amendments will require charities to recognise any agreement to fund a deficit in the multi-employer scheme as a liability on their balance sheets.
The issue bubbled to the surface last year when auditor Baker Tilly chose not to repitch for the Citizens Advice audit account because it disagreed with the charity’s decision not to include its pension liability on its balance sheet. Baker Tilly felt it was prudent for this debt to be included and had qualified the charity’s accounts for the previous four years because of this treatment.
Citizens Advice chose Crowe Clark Whitehill as its new auditor after Baker Tilly resigned.
At the time, neither the Charity Commission nor then-Accounting Standards Board would take a public position on whether Baker Tilly or Citizens Advice was right. But now the Financial Reporting Council has produced an exposure draft that proposes amendments to the relevant accounting standard, among them a change to accounting for pension liabilities in multi-employer schemes.
The exposure draft states that the existing accounting standard (FRS17) “does not explicitly require entities who participate in a defined benefit multi-employer plan…to recognise a liability in relation to the deficit in the plan” – confirming that the accounting treatment currently followed by Citizen’s Advice, and its new auditor CCW, is correct.
However, the view of some accounting experts is that the existing standard also does not preclude charities from being transparent and recognising the liability if they so wish. A number of accountants contacted by civilsociety.co.uk agree that Citizens Advice could have brought in the liability of the agreed deficit reduction plan if they had wanted to, because that would be in line with the overriding principle of UK GAAP (Generally Accepted Accounting Principles) that the accounts must give the reader a true and fair view.
The proposed change, if accepted, will require such charities to recognise the liability in their accounts, if a formal deficit-reduction payment plan has been put in place. The relevant clause in the exposure draft states: “The proposed amendment…propose that employers participating in a defined benefit multi-employer pension plan, accounted for as a defined contribution plan, recognise a liability to make payments to fund a deficit relating to past service where they have entered into an agreement to make those payments.”
The FRC is requesting comments by 3 December.
- Click here to read an expert opinion by Pesh Framjee, partner and head of non-profits at Crowe Clark Whitehill, the new Citizens Advice auditors, about this issue.