Thoughts on a significant UK twist to IFRS pensions accounting

Company Reporting prides itself on spotting emerging stories in the IFRS accounting world and recently we have uncovered a significant and perhaps unwelcome incipient trend in pensions accounting in the UK.

Our first inkling of this was when Marks & Spencer began to use a partnership interest related to its pension scheme to transfer former pension liabilities into part of parent equity.  However, recently M&S has been joined partly in this by two further UK companies.  We identified this when we looked into the reasons for an increase in GKN's total equity. Both GKN and IMI now treat part of their former pension liabilities as equity through partnership arrangements, though in the form of non-controlling interests.

The argument is that payments are at the company's discretion and hence qualify as equity. Our feeling is that this has the potential to undermine the comparability of pension accounting across companies and that it raises considerations about presentation and perhaps even valuation of the equity component, which is understood as a residual figure. The issues of comparability of disclosure that arise are not directly addressed by current IFRS and there is probably a case to be made for this to be added to the IFRIC agenda.