Jacqui Waring of Goringe Auditors Limited has prepared this handy guide to pension audits: what they involve, why they matter and who needs them.
What Is A Pension Audit?
Most occupational pension schemes in the UK have to produce annual financial statements for their members every year. As part of that, they have to appoint a scheme auditor to report on the financial statements and on the payment of contributions to the scheme.
What are the requirements for pension scheme accounts?
Pension Scheme accounts are subject to UK GAAP accounting standards. In addition, the Statement of Recommended Practice (SORP) provided by the Pensions Research Accountants Group (PRAG) gives guidance on best practice for financial accounting and reporting of pension schemes. An updated SORP (2015) came into effect for all accounting periods starting on or after 1st January 2015, which updates the guidance to bring it in line with FRS 102, the latest accounting standards.
How Is An Audit Carried Out?
The trustees provide us with draft pension scheme accounts, which include a Fund Account (which is the equivalent of a Profit & Loss) and Statement of Net Assets (which is equivalent to a Balance Sheet). They also provide reports from their key advisers, such as their actuaries, scheme administrator and investment managers, and access to any staff we need to complete the audit.
We usually spend a couple of days at the pension scheme (or related employer’s) offices, cross-referencing a sample of transactions with employee pay slips and other supporting documentation. We ensure that the accounts have been prepared accurately, and the contribution payments have been made at the correct time and in line with the agreed schedule of contributions.
There are two types of occupational pension: Defined Benefit (or Final Salary) Schemes and Defined Contribution (or Money Purchase) Schemes. For both, we ensure that the accounts prepared tie into information held by the scheme’s advisers and the payroll records of the employer
For defined benefit schemes, this involves testing whether the contribution amounts set by the scheme’s actuary are being paid in by the employer. For the latter we ensure that the agreed contribution amounts are being paid by the employer within certain timescales.
What’s The Final Outcome?
As auditors, we prepare and sign two reports that are included in the financial statements, within the Trustees’ annual report. The first is an independent audit report on the financial statements that a pension scheme’s accounts show a true and fair view, and meet all necessary accounting requirements. The second is an auditor’s statement about contributions, which certifies that payments were made in line with the pension’s schedule of contributions.
When Does The Audit Need To Take Place?
The audit report is addressed to the pension scheme’s trustees and has to be signed—along with the rest of the financial statements—within 7 months of the scheme year end. These don’t have to be filed anywhere, they just have to be available in case a member, or the regulator, requests a copy.