Financial accounts are supposed to enable readers to understand the financial position of the entity under review. But, yesterday, the National Association of Pension Funds published a report attacking the notion that accounts provide neutral and reliable information about an employer’s pension scheme liabilities. The critique, written for the NAPF by Dr Iain Clacher and Professor Peter Moizer of Leeds University Business School, is pretty damning of the standard setters.
The report goes beyond a technical critique of the accounting and financial issues. It argues that accounting has been influenced by politics, but lacks a democratic mandate.
The report also exposes how financial presentations demanded by the current accounting regime have negative economic consequences at both the micro- and macro-economic levels: changing the demand for bonds, driving up the price and thereby increasing pension schemes’ liabilities in a vicious cycle as asset purchases try to keep pace with accounting measures.
This debate has been running for a long time – some of the ideas discussed in the report can be found in previous blogs and articles available on this website – and many of those involved have developed a world-weary approach to it all. The NAPF Chairman, Lindsay Tomlinson, told the Independent on the day the report was published: “After the event I’m going to be proved right but we are not going to win this argument.”
I fear that he’s right on both counts.