A guide to ‘Pension scheme reports and financial statements, and related matters in the context of the COVID-19 pandemic’ has been published jointly by the Institute of Chartered Accountants in England and Wales (ICAEW), the Institute of Chartered Accountants of Scotland (ICAS) and the Pensions Research Accountants Group (PRAG).
The guide has been prepared to support pension scheme auditors navigate the additional challenges they are likely to experience as a consequence of the COVID-19 pandemic in meeting their responsibilities towards the scheme’s annual report, including the audited financial statements. Trustees and accounts preparers will also find it useful when considering their own challenges, and to understand those faced by the auditing profession.
Christine Scott, Head of Charities and Pensions at ICAS, said:
“The impact of coronavirus means it can’t be business as usual for pension schemes and their auditors. Our new guidance has been developed to help navigate the additional challenges that may arise. As well as referring to our guide, pension schemes and their auditors should continue to apply existing standards and guidance and keep up to date with new COVID-19 related announcements and guidance from the Financial Reporting Council (FRC) and The Pensions Regulator (TPR).”
Andrew Penketh, Chair of ICAEW Pensions Sub-Committee, said:
“The coronavirus crisis has brought about new challenges for trustees, accountants and auditors in the preparation and audit of the annual report and accounts of pension schemes. This joint guide will help navigate these challenges so that key issues and accounts disclosures are considered and dealt with in an appropriate and timely way.”
Shona Harvie, Chair of the PRAG Executive, said:
“This guidance aims to provide the pensions industry with a joined-up approach to addressing the impact of COVID-19 on pension scheme accounts. In conjunction with this, PRAG will be issuing updated going concern guidance for pension schemes following the recent revision to International Standard on Auditing (ISA) (UK) 570 'Going Concern'.”
Examples of areas covered in the guide are detailed below.
The ability of the scheme to continue operating, including making benefit payments will depend on the resilience and viability of its pensions administration. Trustees and their auditors will need to engage at an early stage to determine if there is likely to be any disruption to the financial statements’ production process.
Trustees should reflect on the impact of COVID-19 on the content of their Trustees’ report and other narrative elements of the annual report, such as the Chair’s statement, from a governance perspective, where there is an impact.
Consideration of going concern in the preparation of pension scheme financial statements is going to require greater focus due to COVID-19. Trustees are responsible for undertaking the going concern assessment. The Trustees need to consider the extent to which the COVID-19 pandemic impacts on the basis of preparation, and whether there are any material uncertainties in relation to going concern which should be disclosed albeit the accounts may still be prepared on a going concern basis. Auditors will ask trustees to provide evidence to support the Trustees’ going concern assessment, to enable them to assess whether there is any impact on their audit report.
The Trustees’ assessment of going concern should take into consideration the specific circumstances of the sponsoring employer covenant. Not all employers will have suffered equally as a consequence of the COVID-19 pandemic, with some business sectors being impacted more than others. Further if an employer would be able to operate at reduced size this may not necessarily create a material uncertainty as to whether the pension scheme is a going concern.
DC master trusts are usually supported by a funding entity and are required under regulations to hold, or have access to, reserves to fund a wind up if a triggering event arises and the master trust cannot continue to operate. When assessing the going concern of DC master trusts, consideration will need to be given to the financial strength of the funding entity and whether a trigger event could arise as a result of the insolvency of the Scheme Funder or whether the master trust is unlikely to be able to continue as a going concern. Consideration will also need to be given as to whether the level of financial reserves still meets requirements.
Other key accounting issues covered in the Guide include:
This is an area where auditors may have to consider their approach due to potential suspension or reduction of deficit recovery contributions or future contributions (defined benefit only), changes in pensionable earnings and Coronavirus Job Retention Scheme issues.
New and updated guidance is being published on a regular basis. So it is essential that the Guide is read alongside the latest available guidance from The Pensions Regulator (TPR), the Financial Reporting Council (FRC) and other key third parties. If you require further assistance in this area please speak to your usual Crowe contact.