The FRC have just published their Key Facts and Trends in the Accountancy Profession – June 2015
The Financial Reporting Council is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. We promote high standards of corporate governance through the UK Corporate Governance Code. We set standards for corporate reporting, audit and actuarial practice and monitor and enforce accounting and auditing standards. We also oversee the regulatory activities of the actuarial profession and the professional accountancy bodies and operate independent disciplinary arrangements for public interest cases involving accountants and actuaries.
The Government is seeking to make changes to the Companies Act 2006, and to the accounting regulations made under that Act and under EU law to implement the EU Directive 2012/6/EU of the European Parliament and of the Council (“the Micros Directive”). It would also make comparable changes to the accounting framework for Limited Liability Partnerships.
The ICAEW believes the lack of transparency and dearth of financial data would lead to more rejections of credit to these smaller organisations.
“We have a number of concerns about the suggested changes, as they may result in less transparency and less useful financial information. This, in turn, can over time have a negative impact on market confidence and on micro businesses’ ability to access finance, at least at the margins,” says Dr Nigel Sleigh-Johnson, head of the ICAEW’s Financial Reporting Faculty.
Transfer values from final-salary schemes are at an all-time high (because 20 year gilts have fallen to 3% whereas in 1990 they were 11%), in fact transfer values are 80% higher than 6 years ago according to Investors Chronicle and they give 6 reasons to leave final salary schemes:
You have other assets to fall back on
You have a scheme from an ex-employer and don’t trust your former employer to keep funding the scheme
You think you former employer is in trouble
Your pension will not be fully covered by the Pension Protection Fund if you former employer becomes insolvent (the cap at age 65 for 2012-13 is £34,000 annual income)
You are in bad health and won’t likely see an average length pension
You are happy not to ever buy an annuity and want more flexible benefits
At December 2012 the FTSE 100 companies had a combined deficit of over £50bn and only 13% of final salary pension are open to new joiners.
How transfer values have out grown scheme benefits
This example would be a for a typical final salary scheme paying 3% benefit increases to deferred pensioners over the last six years and are based on a member who was 50 in 2006.
The Financial Services Authority (FSA) are in general against transfers out of final salary schemes and on the 28th February 2013 issued proposals to change the basis of calculation for transfer values:
The FSA estimates that the changes to the way TVAs are performed will prevent an undervaluation of benefits of up to £20bn. In other words, the changes mean that transfer values may have to increase before an adviser recommends a transfer.
Andy Haldane (Executive Director for Financial Stability at the Bank of England and nominee for Governor) has been working with Long Finance/ACCA/CISI on a new method of accounting – Confidence Accounting.
In a world of Confidence Accounting, the end results of audits would be presentations of distributions for major entries in the profit and loss, balance sheet and cash flow statements. Accountants would present uncertainties as ranges to investors and managers, rather than as discrete numbers: ‘the balance sheet of Company X is worth £Y, plus or minus £Z, and we are 95% confident that it falls within this range’. Auditors would verify these ranges. This would move auditing towards ‘measurement science’, in line with the way most laboratories report measurements. Audited accounts would be presented in a probabilistic manner, showing ranges. Over time, investors could evaluate an audit firm on the basis of how closely historic accounts fell within the stated ranges. Such evaluations might conclude that firms were too lax or too strict. Clients would be able to make their own decisions about audit quality on the basis of historic evidence rather than having to rely on assertions of quality.
This sounds like a good approach to me, especially for larger businesses where lots of assumptions are taken in preparing the accounts.
Economic prosperity requires businesses to be financially robust and that requires sound financial reporting, this could definitely play a key role in achieving that.