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A company is preparing its financial statements and must decide on an accounting policy for an unusual situation that is not covered by accounting standards. Which of the following best explains how the company should proceed? A The company can use any policy that it wishes. B The company should use the policy that ensures the smallest profit. C The company should use the policy that yields the strongest statement of financial position D The company should apply the logic in any accounting standard that deals with broadly comparable circumstances, even though that standard is not directly applicable. [2]A large defined benefit pension scheme is undergoing a formal actuarial funding valuation. The trustees have just received a valuation report from the actuary to the scheme. The report complies with UK professional standards. (i) Outline the professional requirements that would have applied in the production of the report. [3] The scheme has recently closed to new entrants. The sponsor is also considering ceasing accrual in the scheme. (ii) Explain how each of these two events might impact the Standard Contribution Rate and Actuarial Liability. [7] As part of the report the life expectancy on the valuation basis is shown for members of the scheme at age 65. This has reduced since the last valuation, whilst the life expectancy of the general population has increased. (iii) Suggest reasons why this might have happened. [3] During the valuation process the sponsor announces that its profits for this year are expected to be significantly lower than in previous years. (iv) Discuss how the trustees might react to this announcement. 191 [Total 22]Define the term Standard Contribution Rate. [1] A company sponsors a defined benefit pension scheme that provides a pension at age 65 of 1/60th of pensionable salary for each year of service. Pensions in payment increase in line with price inflation, and have an attaching 50% spouse's pension. (ii) Estimate the Standard Contribution Rate using the Projected Unit Method for a 40 year old male joining the scheme, stating any assumptions you make. [5] The company wishes to reduce the ongoing cost of providing pension benefits through the defined benefit scheme. (iii) Suggest six distinct ways of changing the scheme benefits such that the Standard Contribution Rate calculated in part (ii) reduces. [3] (iv) Without performing any calculations, comment on the effectiveness of each of the changes suggested in part (iii). [3] (v) Suggest other ways the company could reduce its ongoing pension costs. [3] [Total 15]