Ask the Analyst Q1 2021

Is covenant strength the only consideration for a scheme going concern assessment?

In the current challenging economic environment, trustees and scheme auditors are having to carefully consider whether their pension scheme is a going concern for reporting purposes.

In assessing whether the going concern assumption is appropriate, trustees should assess a period of at least 12 months from the date of approval of the accounts. The position of the sponsor is an important factor for trustees to consider in performing this assessment, but covenant assessments cannot be taken in isolation. Other factors such as the scheme’s proximity to buy-out, rules around wind-up under the trust deed and rules, and interactions with TPR must be considered.

However, covenant advisors can still provide auditors with context on the position of the sponsor and help trustees make any necessary representations.

Edward Siddeley, Analyst

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