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Accounting for derivatives in pension schemes

PRAG publishes updated guidance and practical assistance for accounting for derivatives in pension schemes


The Pensions Research Accountants Group (PRAG) has published new guidance to help the preparers of pension scheme accounts deal with the wide range of derivative contracts which feature in managers portfolios today. The guidance does not form part of the 2018 SORP (Financial Reports of Pension Schemes) but attempts to explain and illustrate what is required under the SORP.

The publication replaces recently withdrawn guidance issued in 2007 and is available online to all members of PRAG. New members are welcome.

Lydia Song and Peter Luckhurst, co-chairs of the PRAG Derivatives Working Party, said, ‘The derivatives market is in constant change, and the use of derivatives has continued to increase in all types of pension schemes. This derivatives guidance is designed to provide practical assistance to pension scheme accountants in understanding derivatives, maintaining accounting records for derivative contracts and how to report them in financial statements covering the requirements of FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and the Statement of Recommended Practice (Financial Reports of Pension Schemes) (the SORP 2018 version).

As the derivatives market is highly dynamic, with innovative and new products or variants of existing products being continuously introduced, it is inevitable that not all derivative products used by pension schemes will be covered in the SORP and by this guidance. Therefore, generic principles and accounting treatment have been added to this guidance to enable readers to interpret and apply this guidance in these circumstances.’

Shona Harvie, Chair of PRAG Executive, said, ‘There are many challenges facing the preparers of pension scheme accounts when it comes to new derivative strategies used by pension schemes. Thank you very much to Lydia and Peter and the other members of the working party for putting together the updated guidance in this important area.’

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For further information or a copy of PRAG’s guidance paper, please contact PRAG’s Press Officer.