The UK’s Financial Reporting Council (FRC) has found improvement is needed in the audit of pension balances and related disclosures.
The FRC focussed on the quality of audit of pension balances and related disclosures in 51 of its audit inspections in 2017/18 and found that in almost half, improvement was required in at least one aspect of the audit work.
The Audit of defined benefit pensions obligations report highlighted the complexity of auditing pensions due to many companies having multiple schemes with different benefit structures and the need for auditors to exercise sufficient professional scepticism.
Despite suggesting the need for improvement, the report also noted that good practice was identified in a quarter of the audits and in eight audits there was no need for improvement.
The FRC’s executive director of audit and actuarial regulation Melanie Hind said: “The valuation of pension obligations is complex requiring significant judgements and assumptions which carry the risk of material misstatement and/or manipulation.
“Auditors need to understand the work of actuaries inputting to their work and pay attention to assets as well as liabilities. We hope to raise standards by highlighting good practice and areas for continuous improvement.”