Financial Reporting Standard 17 (Hansard, 4 July 2002)

§ Lord Higgins
asked Her Majesty's Government:
What effect they expect Financial Reporting Standard 17 (FRS 17) to have on charities.

§ The Parliamentary Under-Secretary of State, Home Office (Lord Filkin)
My Lords, the Accounting Standards Board has announced a delay to the introduction of FRS 17 following the decision of the International Accounting Standards Board to review IAS 19, the equivalent international standard. Organisations, including charities, will now not have to change their accounting practices twice to introduce FRS 17 by 2003 and a new international standard in 2005. Charities will have the opportunity to make their views known on the standard that will apply to them from 2005.

§ Lord Higgins
My Lords, I thank the Minister for that helpful reply. I should declare an interest as the chairman of a corporate pension fund, although it is not a charity. Does the Minister agree that, while greater transparency in company accounts is highly desirable, the FRS 17 proposal—rightly or wrongly—has brought about a number of unfortunate side effects? Does he further agree that charities are especially vulnerable because they do not normally hold extensive reserves which would lay them open to the charge that they were not fulfilling their functions or, if they were seen to have large reserves, donations might decline? Their assets are often restricted by trusts, deeds and so forth.
The noble Lord points out that implementation of FRS 17 has been delayed. Given that, is there not a case for waiting until we adopt the international European standard, which might have less of an impact on charities? In the meantime, perhaps we should proceed as we are at present.

§ Lord Filkin
My Lords, no one would argue against improved transparency either in company or charitable accounts. Clearly, charities also have a duty to their stakeholders. Without going into further detail, FRS 17 has been extremely challenging in its introduction.
343 The noble Lord made two points with regard to whether all charities are exposed. Of course not all charities have defined benefits schemes; those which do not will not be vulnerable. I understand that the intention is for IAS 19 to be converged by the ASB, but at present we are not certain exactly what IAS 19 will look like. However, we have gained a useful breathing space for reflection and, it is hoped, for negotiation and influence.

§ Lord Phillips of Sudbury
My Lords, does the Minister accept that this issue is a problem for charities mainly in relation to the funding of pensions? Does he further accept that many funders of charities are reluctant—to put it mildly—to contribute a fair share of the pension overheads of charities with employees in pensions?
Will the Government set a good example in this regard by demonstrating that they are willing to make a full contribution towards the pension and other employment overheads of charities when contracting with or funding them? It has to be pointed out that, at the moment, that is far from being universally the case.

§ Lord Filkin
My Lords, at times the issues of the funding of pensions and FRS 17 can become interconnected. Clearly there is an issue with regard to the cash funding of the pension scheme on which an employer has determined, irrespective of the accountancy treatment. As an employer, any charity must think carefully and prudently about the package of employment benefits it thinks it needs and can afford to offer.
With regard to the first question put by the noble Lord, asking whether the Government will in effect sign a blank cheque to fund all such pension schemes—perhaps that was not quite what he said—the answer is no. However, we are looking at the whole issue, both in the cost-cutting and the PIU reviews on charities. We expect to produce some interesting publications in the autumn about how policies towards charities and the voluntary sector are to be developed in the future.

§ Baroness O'Cathain
My Lords, can the Minister clarify the implications of the delay in the introduction of FRS 17? Is it not true that reserves still have to be shown in the accounts? Therefore, the point made with regard to the reserves held by charities is valid, irrespective of anything the Government may have done with regard to postponing the introduction of FRS 17.

§ Lord Filkin
My Lords, that is right. The noble Baroness has gone to the point I sought to make. Irrespective of the accountancy treatment, a company or a charity has to be able to meet its liabilities as they fall due, including pension liabilities. I understand that until FRS 17 or its equivalent is brought in, a note will be put to the accounts making a statement about the estimated assets and liabilities of a pension fund. The 344 information will still be available in the accounts, but it will not be quite such a painful presence on the balance sheet.

§ Earl Russell
My Lords, am I right in understanding that FRS 17 rests on the principle of the worst case scenario? It assumes that all liabilities will become due at once; it assumes that defined pension liabilities will all become due at the moment of entitlement; and it further assumes that charities will be able to dispose of their assets when in fact, in law, many of them will not be able to do so. Am I also right in thinking that anything that can assume such a concatenation of worst case scenarios all happening at once deserves the comment of Winnie-the-Pooh: 'Supposing it didn't?', said Winnie-the-Pooh, after some thought"?

§ Lord Filkin
My Lords, I feel that my knowledge of Winnie-the-Pooh is stronger than that of the intricacies of the accountancy presentation of pensions. For that reason, I shall write to the noble Earl rather than go into the full details.