Accountants issue scheme guide to revised recommended practice rules

The objective of SORP is to narrow differences and variety between ‘comparable entities’ in schemes’ investment accounts, by recommending particular accounting treatments and disclosures.

For year-end reporting dates from December 31 2015, UK occupational schemes must provide enhanced disclosures on their investment risk, break down transaction costs in much more detail and provide a fair-value hierarchy of their assets.

The guidance aims to help scheme trustees, investment professionals and accountants overcome some of the more complex requirements of the updated SORP.

We’ve issued guidance around what we think the valuation hierarchy should look like, something that’s helpful to the industry

Shona Harvie, Crowe Clark Whitehill

Issued at the PRAG annual general meeting in November, the revised SORP aims to make scheme disclosures more relevant and transparent, in light of updates to the FRS 102 reporting standards by the Financial Reporting Council in 2013.

Shona Harvie, partner at consultancy Crowe Clark Whitehill and chair of a working party formed between the Investment Managers Association (now known as the Investment Association) and PRAG, said early planning would be crucial to ensure smooth implementation of the SORP and recognised several areas will be challenging to many schemes.

Harvie said the working group had been through lengthy discussions about how schemes should disclose valuation hierarchies, homing in on a clear process for how schemes should categorise pooled funds.

“We’ve issued guidance around what we think the valuation hierarchy should look like, something that’s helpful to the industry,” she said.

“The valuation hierarchy for pooled funds is [to be] considered at the unit level so you don’t have to look under the wrapper… [this] solution will really simplify the requirement for pensions schemes in terms of making the analysis more straightforward.”

Closing the gaps

Kevin Clark, head of pensions assurance at consultancy KPMG, said the more granular guidance on pooled funds was “very sensible and logical”.

“There were some gaps in the SORP because the thinking needed to carry on,” he said. “I think it’s moving towards a very practical approach.”

Clark added the guidance emphasised key messages in the SORP.

He said: “The investment disclosures can be framed around the trustee investment strategy if the account preparer so wishes to.

“The asset disclosure still leaves room to bring in the presentation and groupings consistent with the scheme’s strategy.”

Gerard Weide, head of pension fund accounting at consultancy Towers Watson, said schemes with a December 31 year-end had six months to implement the new requirements.

“In the next three months trustees should be in contact with their advisers to draft a plan,” he said. “Accounts preparers will then need to do a mock-up of what a year-end 2015 accounts might look like.”