Pensions Research Accountants Group publishes revised guidance on Pension scheme financial statements and going concern
The Pensions Research Accountants Group (PRAG) has published updated guidance on pension scheme financial statements and going concern (December 2020).
Following the revision of International standard on auditing (ISA) (UK) 570 on going concern and the possible implications of the COVID-19 pandemic on the financial health of pension schemes, PRAG decided to update its going concern guidance.
The PRAG guidance will be of assistance to accounts preparers and pension scheme auditors. It will also help pension scheme trustees to understand their responsibilities for the preparation of a going concern assessment for their scheme and in preparing that assessment.
Publication of the PRAG guidance follows the earlier publication of joint guidance by ICAS, ICAEW and PRAG on Pension scheme reports and financial statements, and related matters in the context of the COVID-19 pandemic (May 2020).
The PRAG guidance is only available to PRAG members who can access it via the PRAG website.
The guide’s introduction provides the following context:
“For the majority of pension schemes the going concern assessment should be straightforward. However, there will inevitably be instances where the going concern assessment will be more challenging and disclosures more sensitive. These situations will need to be dealt with based on their particular circumstances and key to this will be early and clear communication to all interested parties of the going concern disclosure requirements for pension scheme financial statements and their associated auditor’s reports.”
While the FRC’s accounting and financial reporting requirements, and audit requirements around going concern apply to entities generally, the PRAG guidance is tailored to the circumstances of UK pension schemes (other than public service pension schemes) and is therefore a valuable industry resource. The guidance applies to both defined benefit (DB) and defined contribution (DC) schemes.
The going concern concept does not play the same fundamental role in the preparation of pension scheme financial statements as it does for other entities as the majority of assets are held at fair value and liabilities to pay future benefits are not recognised. However, as things stand interpreting the going concern concept for pension schemes requires greater focus than in previous years, not least because of the additional procedures auditors must conduct in order to comply with revised ISA (UK) 570.
Among the changes to the revised ISA (UK) are greater emphasis on the need for the auditor to demonstrate how they have challenged management’s going concern assessment concern, and to thoroughly test the adequacy of the supporting evidence and evaluate the risk of management bias.
Pension trustees will need to make complex and sometimes difficult judgements about the going concern status of their scheme and the guidance will support them in doing so by providing examples of matters and circumstances that may lead to non-going concern or material uncertainty disclosures in the financial statements. It also provides a template for a going concern assessment, including examples of the key matters considered by the trustees in making their assessment and examples of evidence to support conclusions reached.
Christine is a member of the PRAG SORP Working Party and the PRAG Going Concern Working Party.
Read the revised guidance
The revised guidance is available to PRAG members via the member zone of the PRAG website.