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accounting standards compared

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A ccounting forD efined B enefitSchem es (1) UK G A A P (SS A P 24) US G A A P (FA S 87) IAS 19 UK G A A P (FR S 17) (a)O perating expenses + Service cost + Service C ost + Intereston Liabilities -Expected R eturn on Assets -(G radual)Am ortisation of surplus/(deficit) (2) + Service C ost + Service C ost (b)Financing R esult --- --- + Intereston Liabilities -Expected R eturn on Assets -(G radual)Am ortisation of surplus/(deficit) + Intereston Liabilities -Expected R eturn on Assets (c)P&L Im pact (a) (a) (a)+ (b) (a)+ (b) (d)STR G L --- --- --- Actuarial G ains and Losses (includes full am ortization of surplus/deficit) C ashflow im pact Actual paym ents m ade in year Actual paym ents m ade in year Actual paym ents m ade in year Actual paym ents m ade in year DiscountRate forLiabilities Expected R eturn on Assets,S ubjectto Actuarial D iscretion H igh Q uality C orporate Bond Based (AA) H igh Q uality C orporate Bond Based (AA) H igh Q uality C orporate Bond Based (AA) AssetValue M arketR elated,but Actuary D iscretion M arketV alue (som e sm oothing allow ed) MarketValue MarketValue Total Annual Balance SheetIm pact (c) (c) (c) (c)+ (d) Pensions Considerations Accounting Standards Compared Pension Adjustments Client Name or Project Name Notes 1. For unfunded schemes there is no expected return on assets 2. Amortisation not required if deficit/surplus is within the “corridor”, being 10% of the greater of PBO and plan assets C:\Documents and Settings\tejjoba\Desktop\Presentation2.ppt\A2XP\30 APR 2007\3:58 PM\2 • Accounting Standards worldwide are moving towards mark-to-market valuation approaches • SSAP 24 allows considerable discretion allowing pension costs to be smoothed over time • FAS 87, IAS 19 and FRS 17 prescribe the use of market values for assets and the valuation of liabilities using corporate bond yields. This results in more volatility • Under FRS 17, pension surpluses/deficits appear as an asset/liability on the company balance sheet (no smoothing) • Under FAS 87 and IAS 19, the balance sheet surplus/deficit does not necessarily equal the pension fund surplus/deficit because of different valuation methods and timing of surplus/deficit realisation 1

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Page 1: Accounting standards compared

Accounting for Defined Benefit Schemes (1)

UK GAAP (SSAP 24) US GAAP (FAS 87) IAS 19 UK GAAP (FRS 17) (a) Operating expenses + Service cost + Service Cost

+ Interest on Liabilities

- Expected Return on Assets

- (Gradual) Amortisation of surplus/(deficit) (2)

+ Service Cost + Service Cost

(b) Financing Result --- --- + Interest on Liabilities

- Expected Return on Assets

- (Gradual) Amortisation of surplus/(deficit)

+ Interest on Liabilities

- Expected Return on Assets

(c) P&L Impact (a) (a) (a) + (b) (a) + (b)

(d) STRGL --- --- --- Actuarial Gains and Losses (includes full amortization of surplus/deficit)

Cashflow impact Actual payments made in year

Actual payments made in year

Actual payments made in year

Actual payments made in year

Discount Rate for Liabilities Expected Return on Assets, Subject to Actuarial Discretion

High Quality Corporate Bond Based (AA)

High Quality Corporate Bond Based (AA)

High Quality Corporate Bond Based (AA)

Asset Value Market Related, but Actuary Discretion

Market Value (some smoothing allowed)

Market Value Market Value

Total Annual Balance Sheet Impact

(c) (c) (c) (c) + (d)

Pensions Considerations

Accounting Standards ComparedPension Adjustments

Client Name or Project Name

Notes1. For unfunded schemes there is no expected return on assets2. Amortisation not required if deficit/surplus is within the “corridor”, being 10% of the greater of PBO and plan assets

C:\Documents and Settings\tejjoba\Desktop\Presentation2.ppt\A2XP\30 APR 2007\3:58 PM\2

• Accounting Standards worldwide are moving towards mark-to-market valuation approaches

• SSAP 24 allows considerable discretion allowing pension costs to be smoothed over time

• FAS 87, IAS 19 and FRS 17 prescribe the use of market values for assets and the valuation of liabilities using corporate bond yields. This results in more volatility

• Under FRS 17, pension surpluses/deficits appear as an asset/liability on the company balance sheet (no smoothing)

• Under FAS 87 and IAS 19, the balance sheet surplus/deficit does not necessarily equal the pension fund surplus/deficit because of different valuation methods and timing of surplus/deficit realisation

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