The Australian Prudential Regulation Authority (APRA) has signaled a key change to its treatment of superannuation flowing from the application of the International Financial Reporting Standards (IFRS).
In a recent speech to the Institute of Chartered Accountants, APRA’s executive general manager, Policy Research and Statistics, Charles Littrell said that IFRS requires companies to report the value of superannuation surpluses and deficits, with changes flowing through profit and loss.
He said that after careful consideration, APRA proposed to vary both its current economic approach, which is to ignore superannuation surpluses and deficits, and also to vary its approach from IFRS.
“To wit, we are conforming with the treatment of superannuation deficits, but disallowing surpluses,” Littrell said. “Furthermore, we are calculating this result on a fund by fund basis within a reporting entity, not by netting all funds.”
He said this had resulted in a more conservative prudential treatment than accounting treatment.
“APRA feels confident that this is the right result,” Littrell said. “There are clear reasons to consider superannuation deficits a liability. It is far less clear that superannuation surpluses are a prudential asset.”
“In particular, such assets are highly unlikely to be available quickly to support a troubled institution, and may not be available at all given the complicated litigation history surrounding this asset class.”
Dealing with another area impacting the superannuation industry, Littrell used his speech to deal with governance issues which he said was a hot topic because there was “general sense that the laissez faire trend in the 1990s went too far.
“It is not sufficient to leave governance matters to companies or even the share market,” he said. “There have been too many painful failures, both in Australia and offshore, to support such an approach.”
