UK companies have been seriously hit in 2003 when the FRS 17 required for the first time that pension liabilities be incorporated in their balance sheets. Companies under the UK GAAP have been required to make FRS17 disclosure since 2001. The IAS 19 will replace the FRS 17 for UK companies listed on a EU stock exchange from 2005. "For non-listed companies, the UK government has signalled that they will be permitted, but not required, to use international standards, with a review in 2008. This implies that whilst listed companies will have to use IAS19 for their consolidated accounts, any non-listed subsidiaries who have opted to retain UK GAAP will report pension costs under FRS17", states Watson Wyatt.

According to the consultancy, one of the main difference between the FRS17 and the IAS 19, which are overall fairly similar with a somewhat wider range of employee benefits covered by the IAS 19, is to be found in the FRS 17's approach of requiring immediate recognition on the balance sheet of any surplus or deficit within the pension plan. IAS 19 currently allows actuarial gains and losses resulting from the unexpected actual experience in the pension plan to be recognised over a period of years.

However, the proposed changes should partly address this situation. "One of the proposed changes to IAS19 will partly address, on an interim basis, a major difference that remained, by allowing companies to account for actuarial gains and losses using the approach adopted by FRS17", write Watson Wyatt's analysts.

Companies that will have to switch to IAS 19 should gear up from now according to Watson Wyatt. "The IASB's intentions on the major issues are sufficiently clear for companies to start preparing for the switch to international standards from 2005. Given the proposed changes, figures assessed under FRS17 should be an excellent starting point."

J.L.