The guidance, prepared by PRAG’s SORP working party, is designed to support pension trustees with going concern issues, particularly in light of a number of under-funded pension schemes as a result of company failures and bankruptcies, and recent major collapses like BHS where the pension scheme had to be put into special measures via the Pension Protection Fund. 

For some schemes, ‘there will inevitably be a small number of instances where the going concern assessment will be more challenging and disclosures more sensitive’, said Shona Harvie, chair of the PRAG Executive.

Consideration of going concern involves making judgment about future events, which it says cannot always be predicted, adding that the omission of disclosures about material uncertainty relating to a scheme’s ability to continue as a going concern, should not be viewed as a clean bill of health.

PRAG stresses that ‘this cannot be viewed as a guarantee to the scheme’s ability to continue as a going concern’.

Penson scheme financial statements are prepared in according with FRS 102, the main UK GAAP, and the Pensions SORP (Statement of Recommended Practice).

The guidance sets out details about elements of compliance with accounting standards and disclosure requirements, with detailed examples of how the various FRS 102 sections apply to pension financial statements. It also refernces instances where schemes could be described as being exposed to ‘material uncertainties’, including where The Pensions Regulator is investigating a scheme, or has issued a freezing order, in anticipation of a potential winding up order.

It also cautions that scheme trustees keep a close eye on wider financial issues facing the scheme holder, such as any period of financial difficulty, and be alert for renegotiation of financing and debt liabilities.

‘We suggest early and clear communication to all interested parties about the going concern disclosure requirements,’ adds Harvie.

Kevin Clark, Chair of the PRAG SORP Working Party, said: “Audit reports are now required to comment on the appropriateness of the going concern basis of accounting. This requirement applies to the audit of pension schemes. Trustees are also required to make a statement about going concern in the statement of trustee responsibilities. Although this does not represent a change to pension scheme auditors’ and trustees’ responsibilities, PRAG anticipates that this requirement will raise the profile of the going concern assessment and therefore considers it helpful to provide practical and proportionate guidance for trustees and pension scheme auditors.” 

PRAG Pension Scheme Financial Statements and Going Concern guidance, issued April 2018, is available for PRAG members only

Report by Sara White