As you may be aware the SORP Working Party are currently considering changes in the way that Scottish Housing Association Pension Scheme (SHAPS) is accounted for. Currently the full liability for the SHAPS is not included in the balance sheet because they are not able to identify each Association’s share of the assets and liabilities. The working party’s plan is that a framework will be developed in order that the individual share of assets and liabilities for each Association can be estimated and recognised in the annual accounts.
We have had a presentation from SHAPS on the current proposals and would like to feedback on this to highlight some potential issues that may arise in future years. It should be noted that no proposals have been finalised and the purpose of this blog is to draw attention to issues that may arise in future audits, rather than go through the proposals from a technical point of view.
Each member RSL’s share of the assets and liabilities of the scheme will be arrived at using an agreed framework. Some assumptions will be made, particularly with how assets are split in order to arrive at a valuation. These figures and additional disclosures will form the basis of the figures that will be recognised in the financial statements from March 2019 onwards.
Our understanding is that there is unlikely to be a new SORP to provide guidance on this treatment and instead the SORP Working Party are hopeful that the Financial Reporting Council (FRC) will provide application guidance in the form of a bulletin. This being the case we are not sure what, if any, consultation will take place with regard to these proposals.
Also – it is suggested that no prior year adjustment will be required as they are suggesting that this is not a change in accounting policy, although it is unclear how this will be introduced. The current policy, under FRS 102, is that the assets and liabilities should be recognised if there is sufficient information to enable this to be done. The argument is that this is not a change in policy, what has changed is that the information to disclose the assets and liabilities will now be available.
Assuming that the proposals go ahead as planned and clear guidance is issued the following should be borne in mind:
Impact on Audit Process
SHAPS have informed us that they will issue these figures in May 2019. They hope to announce the date that these figures will be released. These figures will almost certainly be material and the disclosure is complex. This may mean delays in final accounts being produced and subsequently audited. Our intention is to audit these figures for all of our clients as soon as they are released in order to finalise audits as soon as possible. However, some changes may be required for clients whose audit fieldwork begins in May. This will have an impact on each subsequent year. It should also be noted that this is heavily reliant on SHAPS delivering these figures on time and we need to consider the need for a contingency plan if the figures are delayed.
A potentially substantial change in the accounts will only be known about in May each year. In some cases this could lead to a covenant breach.
We will update the accounts template to take account of this change. Our timescales for this may be impacted depending on when the guidance is issued and SHAPS provide the relevant information.
SHAPS intend to produce an online tool. Each RSL will be able to change the assumptions made. If assumptions are to be changed from the actuarial assumptions provided we will require audit evidence to support the change. We would therefore recommend that you inform us as soon as possible if you plan to change the assumptions.
Last Man Standing
It will be interesting to see how the fact that the scheme is a last man standing scheme is dealt with in the proposals. Any calculation of assets and liabilities will be based on the assumption that all other members of the scheme will make good on their commitments to the scheme. There is a danger that a reader of the accounts is not aware of this fact. We would expect that there will be disclosure of the nature and potential effect of this contingency.
Each member RSL will have to pay for the valuation each year in order to complete their accounts.
We will be issuing guidance on this once firm proposals are issued. We will also seek to minimise the impact on the audit process for you and us, by, for example, updating the template.