With all the award seasons happening at this moment, it is perhaps appropriate for this article to take on a bit of movie magic. All movies have some sort of a structure, so with this in mind and using one movie metaphor after the next, this article will describe the process followed; the logic behind the “framework” and the expected future 01developments. So sit back, grab a box of popcorn and a soft drink, or just get the combo and enjoy the magic of Retirement Fund Accounting, movie style.

The Studio Bosses
The Registrar of Pension funds at the Financial Services Board commissioned the writing of the screenplay for Regulatory Reporting Requirements for Retirement Funds in South Africa, which will be shortened for this review to “the framework”. The Registrar commissioned the disclosure requirements in terms of the financial statement template for Retirement Funds years ago, so what was out there was really the set for the film. However, the “filling’ for that set in terms of consistent recognition and measurement criteria for the industry was conspicuously absent. The industry was clinging onto a statement in the financial statements that made mention of general adherence to Generally Accepted Accounting Practice (GAAP) minus a few concepts. In reality, this statement was more than just GAAP minus, it was like taking a big budget film such as Titanic and picking away at the movie until Titanic resembled a rubber dingy heading for a floating ice cube, all shot in a glass of water.
The work group considered the following options before deciding on the appropriate course of action:
• It could rely on IAS 26, unfortunately, however, IAS 26 does not fully address the needs of the retirement funds industry.
• Globally a project was launched, scouting the international accounting industry for the next best thing – an International Financial Reporting Standard (IFRS) for retirement funds. However, it was concluded that the regulatory requirements differ so significantly from country to country that the project was mothballed for the time being.
• The industry could also have adopted full IFRS compliance. This would have been like taking the budget for the most expensive film ever made and blowing it tenfold up. The industry currently has approximately 15 000 registered funds. The size of these funds range from one man funds to much larger funds that house billions of assets. The impact on the industry of full IFRS compliance, already under pressure due to costs, would have been extensive and may not have met the needs of the users.

A “framework” for the industry was thus developed without deviating significantly from the fundamental accounting concepts and elements in the related IFRSs. The framework had to take cognisance of the practicality of implementation and the legal framework in which retirement funds operate.

Once the studio bosses had decided on the approach, a working group of the SAICA Retirement Funds Project Group commenced with the writing process. The scriptwriters of this framework got together and meticulously crafted the screenplay. The project spanned a number of years and IFRS statements were read, and the relevant concepts extracted that could fit the industry practically.

In order to gauge the target audience responses, the document was sent out for public comment. Comment was analysed from a wide range of audience participants. Many industry bodies and individuals “locked in their vote” and provided comment.

Some concepts embodied in the IFRS got the cut such as consolidations, cashflows, and segmental reporting to name but a few. The scriptwriters focused on ensuring that the accounting policies included in the framework could be consistently applied across all funds in the industry. For instance, considerable time was spent on the investments of retirement funds and the section details investment products with specific valuation techniques such as non-linked policies where there are reversionary bonuses.

Location, Location, Location
Now that the screenplay was complete, a location for this document was needed. Was it to be shot on the set of SAICA or the FSB? The FSB controls the document as it is tailored to the needs of the FSB and its requirements.

How were the actors going to adapt to this script? The actors, in this case, the users of the framework use a gap analysis to identify deficiencies between their current accounting policies and the requirements of the framework. The implications of any deficiencies noted should then be considered from a system, process and/or financial recording perspective, and appropriate project plans should be implemented on a timely basis to address the deficiencies.

It is amazing how the marketing machine works in Hollywood. Why should this be any different for a framework? The Registrar of Pension Funds published Board Notice 14 of 2009 on 4 February 2009, which prescribes the Regulatory Reporting Requirements for Retirement Funds in South Africa. The Regulatory Reporting Requirements are to be complied with in the preparation of the annual financial statements as referred to in Board Notice 99 of 2008, and will be effective for financial years of funds beginning on or after the 1 January 2009.

So is this framework rated?
Yes, unfortunately not everyone can enjoy using the framework initially, especially those funds such as retirement annuity and underwritten funds, which are somewhat “sensitive” to the accrual concept. Financial years ending in 2010 will have to do the big switch from cash to accrual.

Yes, there will be…many. The framework will be updated and adapted as the relevant IFRSs change and new developments face the accounting and retirement fund industry. This will be a sequel that will get better in time and not regress.

And that’s a wrap
It has been a lengthy process. It is in its infancy, but South Africa again is at the forefront of industry, developing a framework that addresses specifics in the industry but without compromising basic accounting concepts.

Michael Dokakis CA(SA), is Branch Head at Alexander Forbes Financial Services (Pty) Ltd.