Auditors Criticised By Accountancy watchdog Over Pensions Reporting Shortcomings

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    Last Thursday, auditors have been slammed by the accounting watchdog after it discovered some significant room for improvement in the way that various pension schemes are valued.

    The Financial Reporting Council (FRC) said that in half of the 51 audit inspections that it was able to review, some improvements were required in at least one aspect of the audit work.

    The council admitted that valuation judgements were usually hard to determine because of the existence of various pension arrangements, and insurance strategies including longevity swaps, which transfer a portion of the liabilities of a particular scheme to an insurer.

    The regulator added that more things must be done to evidence the work of actuarial experts in order to be able to establish a comprehensive valuation of pension assets.

    It also emphasised the need for an intensified focus on calculating the accuracy of pension-related disclosures.

    Last May, the auditors for Carillion, the failed construction company, were criticised by MPs for not being able to identify red flags in the accounts of the company prior to its collapse.

    The executive director of the Audit and Actuarial Regulation at the FRC, Melanie Hind, stated: “The valuation of pension obligations is complex requiring significant judgements and assumptions which carry the risk of material misstatement and/or manipulation. Auditors need to understand the work of actuaries inputting to their work and pay attention to assets as well as liabilities. We hope to raise standards by highlighting good practice and areas for continuous improvement.”