The Pensions Research Accountancy Group (PRAG) has published guidance to assist Trustees and auditors to deal with the raised profile of the concept of going concern, when they are preparing and auditing pension scheme accounts. The guidance aims to develop a practical and proportionate response. Both Trustees and auditors are now required to make additional disclosures in the annual report on going concern.
For the majority of pension schemes the going concern assessment will be straightforward and the additional disclosure in the scheme audit report will be uncontroversial. However, there will inevitably be a small number of instances where the going concern assessment will be more challenging and disclosures will be more sensitive.
The revised International Standards of Auditing in the UK, require auditors to include an explicit reference to the use of the going concern basis of accounting in their Audit Reports. This is also covered in auditing Practices Note 15 for pension schemes. The accounting standard FRS 102 and the pensions SORP, also include reference to the Trustee’s responsibilities for assessing going concern.
PRAG guidance ‘Pension Scheme Accounts and Going Concern’ aims to assist Trustees and auditors in developing their approach to going concern assessment in a practical and proportionate way. For most schemes it is anticipated that the assessment will be straight forward. The PRAG guidance is available to members via the PRAG website. The requirement applies to defined benefit, defined contribution and hybrid pension scheme accounts.
A statement about going concern is now required to be included in both the Audit Report and, the Statement of Trustees’ Responsibilities.
There are is also an additional representation on going concern made to the auditors in the management representation letter. For most schemes these new disclosures will be straight forward. There will however be cases where the accounts are prepared on a cessation basis or, there is a material uncertainty as to whether a pension scheme is a going concern. In these cases the Audit Report will draw attention to these facts and any disclosures made in the report and accounts on these matters. These situations will need to be dealt with based on their particular circumstances. Key to this will be early discussion of any such issues.
Where accounts are prepared on a cessation basis, in most cases this will not have an impact on the values in the accounts, where they are already valued at fair value. In most cases the key consideration will be around disclosure.
Although there has been no change to Trustees’ responsibilities in relation to going concern, the additional disclosure requirement highlights the Trustee reporting responsibilities and, raises the profile of the concept of going concern. Trustees should therefore consider how they will formally document their assessment on going concern and material uncertainties in relation to going concern.
In assessing whether the going concern assumption is appropriate, Trustees should assess a period of at least 12 months from the date of approval of the accounts, based on information available at the time of approval of the accounts. Trustees are not expected to ‘crystal ball gaze’ into possible scenarios in the future.
In making their assessment, Trustees should consider information available to them in the ordinary course of running the scheme. Possible considerations for Trustees could include the following: