Mercer today commented on the Accounting Standard Board proposals on pension accounting. The ASB has, amongst other proposals, suggested that companies use a lower discount rate when calculating the value of their future liabilities and substitute actual investment returns for expected investment returns.
According to John Hawkins, principal at Mercer, “If accepted, the ASB proposals will fundamentally change what companies do over the longer term. For example, Finance Directors are going to face a trade off between the higher return expected from equity investments and the volatility equities will bring – and whether they can justify that to directors and investors. There will be some who can do this, particularly at the larger companies, but it will be a real issue for smaller and medium-sized firms, especially those with large pension schemes.”
According to Mr Hawkins, the main surprise with the recommendations is that they do not necessarily come out where the IASB is expected to on all issues, including some of the major ones.
See full Press Release.
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