Focus on being informed
Enhance the effectiveness and quality of the audit of pension balances and disclosures with practical tips and technical insights from Josephine Lunt and Helen Perkins
Pensions are rarely out of the headlines, not least because of the impact that defined benefit pension schemes have on the strategy, financing and operations of public and private companies. Within the financial statements of companies, the pension asset and liability balances can often be some of the largest and more complex balances, with the related disclosures spanning several pages. It is therefore not surprising that this is a key area of focus for the Financial Reporting Council (FRC), as highlighted in its July 2018 report The audit of defined benefit pension obligations – Findings from 2017/2018 audit quality reviews.
There are challenges in auditing pension balances. Some are unique to pensions and others can equally apply across other areas of the audit.
Managing relationships between trustees and employer:
Companies will often have numerous pension schemes arising from past acquisitions, each with its own benefit structure and investment strategy. The pension scheme(s) and the related sponsoring employer(s) are separate entities with separate stakeholders and governance structures. While there is a specific contractual agreement between the company and its auditor, and there are specific provisions of the Companies Act regarding the supply of information to the auditor, the auditor will also have to liaise with the trustees of the pension scheme(s) to obtain relevant information. In large multinational groups, this can prove complex and generally requires careful management, preserving the appropriate confidentiality between the scheme and employer(s).
Find out more
Members of the Audit and Assurance Faculty and subscribers to Faculties Online
To read the complete article, subscribe to Faculties Online or join the Audit and Assurance Faculty and get access to this article in full, plus all future publications, events, webinars and services.