The current market uncertainty comes at the peak time for signing pension scheme accounts, bringing a further challenge for trustee boards already struggling with the volatile economic climate. The annual reporting deadline is 31 October for accounting years ending on 31 March, and 5 November for those ending on 5 April. RSM UK recommends trustee boards take action now to facilitate discussions with auditors and smooth the accounts approval process.

Philip Briggs, pensions audit partner, RSM UK said: ‘Many trustee boards will have assumed that the approval of their accounts would be a routine process, but recent events mean trustees will need to consider two key areas now which are likely to be affected – events after the reporting date, and going concern.’

• Events after the Reporting Date – In some cases a note will be required in the financial statements to reflect material asset value falls, however this is likely to reference the link to expected falls in liabilities, and clarify this is part of a long-term strategy. Any resulting note in the financial statements should demonstrate that this is a non-adjusting event after the reporting period.
• Going concern – auditors will need to appraise how trustee boards plan to meet collateral calls on an ongoing basis, and the sensitivity regarding requirements for the full going concern period must be considered for all accounts. The overall conclusion in this area is unlikely to be affected other than in extreme cases.

Philip Briggs continues: ‘For events after the reporting dates, trustees should ensure that narrative disclosure is provided to meet the financial reporting requirements and ensure consistency with any other wider narrative to members.’

To facilitate a smooth accounts sign off process, trustees are advised to:

• Ensure your auditors have all the relevant information to enable them to document their own conclusions and share expectations of any accounting disclosures or concerns. This means keeping your auditors in the loop in real time.

• Ensure auditors are provided with current asset valuations, dated after 30 September 2022. The challenge for accountants is that pension scheme financial statements only reflect the net asset position, whereas the Trustee Board and their advisers focus on the funding/solvency position. This means that, where the Liability Driven Investment (LDI) strategy is significant, monitoring and reporting processes are focussed on the net liability position.

• Consider the accounting implications of how much the scheme is exposed to current volatility – in particular:

  • To what extent does the scheme follow a Liability Driven Investment (LDI) strategy?
  • What is the exposure to investments that could have suffered a significant loss in value due to interest rate conditions?
  • Is the scheme subject to direct collateral call requirements?
  • Is the scheme being asked for additional funding for unitised LDI investments?
  • Consider bulk annuity policies in scheme accounts. It is highly likely that the basis of valuation for these assets would result in a significant change in value post year end.
  • Where post year end asset falls have been significant, early drafting of suitable narrative disclosure should be shared with all parties to ensure it meets accounting requirements and provides fair and accurate information.

Philip Briggs concludes: ‘Trustees might have thought that the normally routine process of finalising and approving the annual report and accounts was the only straightforward item on their agenda, but recent events have made this a complex process, so an early and open dialogue with auditors is recommended to help get the task done more easily.’