CC BY
11FINANCIAL REPORTING OF PRIVATE PENSION FUNDS IN UKRAINE: CHARACTERISTICS, PROBLEMS AND SOLUTIONS
Tsybulnyk M.
Postgraduate student, Department of Accounting and Auditing
Economic Faculty Taras Shevchenko National University of Kyiv
Kyiv, Ukraine
ABSTRACT
The article considers the main features of the financial reporting of private pension funds in Ukraine. In the course of the study, the problems of compiling the financial statements of private pension funds were determined and suggestions made for their solution. In particular, the process of transition from national accounting standards to international standards and further application of IFRS is quite complex and requires taking into account the already existing experience of other countries. Of particular concern are the differences in the application of IFRS and the current methodology in the preparation of financial statements of private pension funds, which leads to distortion of information and significantly reduces the level of public confidence in private pension funds. Also, based on the analysis of the financial statements of private pension funds in Ukraine, it was revealed that the existing forms of financial statements do not disclose the real situation of private pension funds and do not provide exhaustive information to users of financial statements. Therefore, the proposed ways of solving problems in the article will make it easier to compile financial statements and maintain accounting records in private pension funds.
Keywords: private, financial statements, balance sheet, assets, liabilities, international financial reporting standards.
Problem statement. The pension system in Ukraine consists of three levels: a solidary system of compulsory state pension insurance, a funded system of compulsory state pension insurance and a system of private pension provision.
The system of non-governmental pension provision in Ukraine in recent years demonstrates a progressive development. However, over the past year, the dynamics of concluded pension contracts and the total number of participants in private pension funds has a negative trend. These caused by the crisis phenomena in the economy of Ukraine. In particular, due to a significant decrease in the solvency and increased costs, the population does not have the opportunity to allocate funds for long-term investment. However, the dynamics of the main performance indicators of non-state pension participants has a positive trend. Even in spite of the outflow of new participants, the total pension contributions have a growth. Also in Ukraine, private pension funds switched to the presentation of financial statements in accordance with international standards from 2013 and considered the transition to compulsory private pension insurance for Ukrainian citizens as early as 2017. However, it is imperfection in the display of financial statements of private pension funds that caused the delay of such a decision. Therefore, studies of the financial reporting of private pension funds and the introduction of proposals for their improvement have become of paramount importance in Ukraine.
Analysis of the latest researches and publications. The questions of the activities of private pension funds, the problems of accounting for the activities of non-profit organizations and its display in the financial statements, as well as the specifics of the functioning of private pension funds and accounting in them, are examined by such Ukrainian economists as V.D. Ba-zylevych, M.I. Bondar, M.M Verbinskyi, R.M. Vol-chek , N.I. Hrazhevska, N.O. Gura, P.S. Yeshchenko,
D.P. Zharko, T.H. Zatonatska, V.V. Ilin, K.F. Koval-chuk, O.V. Krasota, S.O. Levytska, E.M. Libanova, S.L. Londar, L.H. Lovinska, T.H. Melnyk, S.V. Nau-menkova, O.V. Nelipovych, Ia.V. Oliinyk, M.V. Romaniuk, A.A. Chukhno, V.H. Shvets and other.
Also, the study of the functioning of private pension funds was paid much attention to in the works of well-known foreign economists, in particular, such as Anderson H., Drury K., Caldwell D., Larson KD, Mel-lis D., Met M., Nidles B., Rice E., Robert N. Anthony, Semion V.S, Sokolov V.Ya., Hill B., Hinz G., Hendrix G., Hendricksen E.S., Holzman G., Shermet AD, who investigated the question of the essence of private pension funds, the historical aspects of this issue. However, despite significant achievements, a comprehensive study of problems and features of financial reporting of private pension funds was not carried out, which determined the choice of the research topic, defined its goals and objectives.
The aim of the article is to examine the features of the financial statements of private pension funds, the study of problems and proposals for their improvement.
Presentation of the main material. On January 1, 2004, the Law of Ukraine [1] came into force, which introduced the third level of the pension system and the creation of a system of voluntary non-governmental pension provision. Non-state pension funds considered by the state as a very important addition to the system of compulsory pension provision, since participation in them allows citizens to independently plan the size of their future pension payments.
A private pension fund (PPF) is a legal entity that has the status of a non-profit organization (non-entrepreneurial company), operates and carries out activities solely for the purpose of accumulating pension contributions to the benefit of pension fund participants with subsequent management of pension assets, and also provides pension payments to participants in the fund
[1]. The main purpose of investing pension assets is to get pension benefits from pension funds provided by participants in non-state pension insurance, while ensuring the return of pension assets above the inflation level and attracting long-term investment resources necessary for economic modernization.
The Law of Ukraine [2] defines the legal framework for regulation, organization, the introduction of accounting and financial reporting in Ukraine. According to Part 1 of Article 2 of the Law of Ukraine [2], its norms apply to all legal entities created in accordance with the legislation of Ukraine, regardless of their organizational and legal form and form of ownership, as well as to representations of foreign economic entities that are required to maintain accounting records and provide financial statements. Since PPF are legal entities, they are required to maintain accounting records and provide financial statements.
An important factor of non-government pension provision in Ukraine is that the servicing of PPF were carried out by several professional participants of the financial market, which carry out various functions for managing PPF assets, administering its activities and storing pension assets.
The peculiarity is that accounting conducted not by the PPF itself, but by the Administrators. Administrator of the PPF (Administrator) is a legal entity that administers the PPF on the basis of a license for the administration of PPF, which is obliged to maintain a personal account of PPF participants; compile reports in the field of NGOs, maintain accounting records and submit financial statements of PPF to the relevant executive authorities and the Council of the Fund, and the like.
PPF administrators compile and submit to the National Commission for Regulation in the Financial Services Markets two types of reports [3]:
- financial statements of the PPF;
- special reports PPF.
PPF form the financial statements in accordance with the Law of Ukraine [2] and special reporting in accordance with the Regulation [3]. In accordance with the Laws of Ukraine [1, 4], PPF as non-profit organizations subject to state control, in contrast to other nonprofit organizations, must submit financial statements in full:
- Form No. 1 "Balance Sheet (Statement of Financial Position)";
- Form No. 2 "Statement of Financial Results (Income Statement Report)";
- Form No. 3 "Cash Flow Statement";
- Form No. 4 "Statement of Changes in Equity";
- Notes to the financial statements.
Based on the analysis of PPF financial statements, it found that the financial reporting forms do not disclose the real situation of PPF and do not provide comprehensive information to users of financial statements. In particular, it concerns the standard form No. 1 "Balance sheet (Statement of Financial Position)", which does not provide an opportunity to assess the actual structure of PPF assets and liabilities, and Form No. 2
"Statement of Financial Results (Income Statement Report)" and Form No. 4 "Statement of Changes in Equity it
Reflected in Form No. 1 "Balance sheet (Statement of Financial Position)", information on the placement of funds of participants in a non-state pension fund is not enough to get an idea of the structure of the fund's aggregate portfolio.
Taking into account the functional purpose of pension funds, their assets and liabilities have a number of peculiarities [7, 9]:
- PPF assets can be in the form of various investment objects (securities, real estate, cash, etc.);
- Assets always have monetary expression and were recorded on individual pension accounts of PPF participants;
- Liabilities formed in clearly defined areas: obligations to participants and administrative costs, which have limitations for each item.
The assets and liabilities of PPF have a specific structure, for the disclosure of which there is a need to compile other forms of reporting. Additional forms of reporting burden the work of PPF administrators, increasing the expenses of the fund for servicing pension products. The approach to the construction of the Form No. 1 "Balance Sheet (Statement of Financial Position)" report for private pension funds should take into account the specifics of the formation of their assets, that is, ensure the information and economic matching of pension assets to pension liabilities.
It should have noted that the lack of information on long-term financial investments in the balance sheet might indicate incorrect attribution of investments in shares, bonds and other securities in current investments.
To reflect the PPF asset structure in the balance sheet, it is advisable to detail information on the composition of the fund's financial investments, namely long-term financial investments (line 1035 Form No. 1 "Balance Sheet (Statement of Financial Position)") to detail in the following areas:
- Government securities;
- Shares;
- Bonds;
- Other long-term investments.
To do this, need add, respectively, lines 10361039.
Under Form 2 " Statement of Financial Results (Income Statement Report)", information on the activities of non-state pension funds reflected in income and expenses in Section I "Financial Results", mainly on the following lines: 2130 "Administrative Expenses"; 2220 "Other financial income"; 2240 "Other income"; 2270 «Other expenses». Sometimes private pension funds reflect in the form number 2 information about other operating income and expenses, although this may be due to not quite matching them with the grouping [8].
However, such detail does not meet the specifics of the composition of incomes and expenditures of APFs and requires the corresponding detailed elaboration of information on them in the form No. 2 «Statement of Financial Results (Income Statement Report)"
and other forms of financial reporting, as the income of APFs is dominated by financial and investment income.
Detailing the income in the species report when compiling it according to international standards would give more insight into the structure of PPF revenues. Thus, the number of "empty" lines will be significantly reduced, since the PPF has no production and implementation, and its operating activities can be called financial and investment income, so it is appropriate to combine them under operating income for PPF. Also there is no taxation, which leads to the uselessness of the article "Net profit" instead of which it is more appropriate to insert the article "Net operating result". In addition, instead of the third part of the report "Calculation of profitability of shares", it will be appropriate to introduce "Calculation of PPF assets net worth".
The meaning of the "Statement of Changes in Equity" in disclosing the financial information of the PPF differs from its role in the ordinary enterprise. The reason for this is that the number of shares of traditional enterprises that are determined for release may differ from the actually issued number of shares. Enterprises can also buy out their own shares with a view to their cancellation or maintenance. Rights to shares may transfer without the participation of the company in such an agreement, for example, a contract of sale of shares of an enterprise between individual investors. In PPF, units created and canceled without restrictions, but it is impossible to trade units as shares traded on a public market. If a participant wants to become an owner of PPF units, his contribution gives him the right to a certain number of units, depending on the unit price on the date of payment. In accordance with this, when assets received, a certain number of units transferred to the participant's account, equal to the amount of the contribution divided by the unit price [10].
When withdrawing funds, the reverse process occurs: units canceled in an amount equal to the amount of funds withdrawn, divided by the unit price. In both cases, the net worth of PPF assets increases or decreases, and then divided into, respectively, more or less units, but the unit value remains unchanged. These transactions have always carried out directly between the PPF and the depositor or participant [5, 6].
Through this difference, the "Statement of Changes in Equity" for PPF is designed to display changes in the number of units that the participants possess, and, thus, to disclose the activities of the fund, rather than its ownership structure. Therefore, it proposed to approve Form 4 for PPF: this report will be similar to the ordinary report on equity; however, this report will indicate the number and value of units owned by fund participants that created or canceled during the reporting year, the activity of the fund in dynamics.
Also relevant is the issue of the preparation of financial statements of Ukrainian PPF by international standards. In accordance with the requirements of the law, public joint-stock companies, starting from 2012, and professional participants of the stock market, starting from 2013, should prepare financial statements under IFRS.
It is the application of IFRS that makes it possible to unify financial statements, makes it more understandable for different users, improves the quality of statistical information, opens up the possibility of its comparison with similar in other countries. However, despite the fact that the IFRS were already been formally adopted in Ukraine, however, there are significant differences between them and accounting regulations (standards), leading to significant disagreements between financial statements compiled in accordance with international and national standards.
The difference in standards has an ambiguous impact on the financial statements of PPF. A variety of standards affects the financial reporting of PPF in several aspects:
- various results and presentation forms with regulations (standard) of accounting and IFRS: depending on which set of standards is applied, the difference between the results of the same financial item can be significant;
- the difference in valuation methods in determining and displaying the value of an asset or portfolio: the use of historical pricing methods and other valuation techniques that directly affect financial information leads to significant discrepancies between IFRS and regulations (standard) of accounting;
- Increase the size of these two differences in the cumulative assessment of portfolio assets at market prices.
Taken together, these differences create an interlacing of accounting standards that significantly affect the essential aspect of the content of financial statements. Some of the IFRS recommendations are not took into account in regulations (standard) of accounting and vice versa. If this distinction stopped, Ukrainian PPF will have better access to foreign investment capital, since the quality of their financial statements will provide a qualitative assessment of the enterprise through direct comparisons with the results of other companies and in comparison with the reference enterprises.
Compilation and presentation of financial statements of PPF in accordance with the requirements of IFRS have also complicated by disagreements and inconsistencies in the legislative framework. Analyzing the current legislation of Ukraine on the functioning of PPF, it can be noted that it mainly takes into account the relevant provisions of EU legislation. However, it needs improvement in terms of compliance with other regulatory legal acts of Ukrainian legislation. In particular, the accounting records of revenues, expenses, settlements and other assets and liabilities, then in the Methodological Recommendations on Accounting of the Basic Operations of Private Pension Funds [6] approved by the order of DerzhinfoPoslug, accounting entries were proposed, but so that after the adoption of these Guidelines in 2004, no changes were made to them. Due to a large number of errors and a large number of inaccuracies, the Order declared invalid. However, it should be noted that nothing was proposed to replace him.
Therefore, propose that we adopt new Methodological Recommendations on the Accounting of the
Basic Operations of Private Pension Funds, taking into account the aforementioned mistakes, as well as supplementing them with Typical correspondence of the accounting records of the main transactions of nonstate pension funds. This will greatly facilitate the accounting of PPFs, as well as help to regulate the conduct of the main operations, for which there are still issues that are not legally resolved.
Conclusions. As a result of the research of the analysis of the composition and structure of the financial statements of the PPF made it possible to propose the approval of new forms No. 1 "Balance Sheet (Statement of Financial Position) for PPF", No. 2 of the "Statement of Financial Results (Income Statement Report) for PPF", No. 4 " Statement of Changes in Equity for PPF" and identify the problems of the transition of the preparation of financial statements from national regulations (standard) of accounting to IFRS.
The disclosure of the specifics and problems of the financial reporting of non-state pension funds made it possible to propose the following solutions: taking into account the requirements of the European legislation and IFRS in the preparation and publication of financial statements, adoption of relevant regulations on the application of IFRS in PPFs, development and approval of the Methodological recommendations for the application of IFRS in sphere of private pension provision, approval of new Methodological recommendations on accounting of the main operations of private pension funds, taking into account all the proposals developed.
References
1. Law of Ukraine "On the private pension provision" of 09.07.2003 № 1058-IV / [Electronic resource] Government portal. - Access mode: http://za-kon.rada.gov.ua/cgi-bin/laws/main.cgi?nreg=1057-15.
2. Law of Ukraine "On Accounting and Financial Reporting in Ukraine" of 16.07.1999 №996 [Electronic resource] Government portal. - Access mode: http://za-kon2.rada.gov.ua/laws/show/996-14.
3. Order of the State Commission for Regulation of Financial Services Markets of Ukraine "Regulations
on submission by the administrator of the private pension fund of reporting on non-state pension provision " of 22.06.2004 №1100 [Electronic resource] Government portal. - Access mode: http://search.liga-zakon.ua/l_doc2.nsf/link1/REG9497.html.
4. Law of Ukraine "On Auditing Activity" of 22.04.1993 №3126-XII [Electronic resource] Government portal. - Access mode: http://za-kon2. rada. gov.ua/laws/show/10-675745.
5. Solution of the State Commission for Regulation of Financial Services Markets of Ukraine "Regulation on the procedure for determining the net asset value of a private pension fund (open, corporate, professional)" of 11.08.2004 № 339 [Electronic resource] Government portal. - Access mode: http://za-kon2. rada. gov.ua/laws/show/4654.
6. Order of the State Commission for Regulation of Financial Services Markets of Ukraine " On Approval of Methodological Recommendations on the Accounting of Basic Operations of Private Pension Funds " of 09.12.2004 № 2968 [Electronic resource] Government portal. - Access mode: http://za-kon2.rada.gov.ua/laws/show/89985476.
7. Gura, N O. 2012. Methodological Principles of Accounting in Nonprofit Non-Budget Organizations. Accounting and Auditing. No. 9. - pp. 3-9.
8. Gura N., Shvets V., 2013. Accounting and financial reporting of non-state pension funds in conditions of transition to international standards. Accounting and auditing, №12. pp. 30-38.
9. Gura, N., Tsybulnyk, M., 2013. Conceptual foundations of improving financial reporting of nongovernmental pension funds. Bulletin of Taras Shevchenko National University of Kyiv. Economics, 147, pp. 33-38. DOI: http://dx.doi.org/10.17721/1728-2667.2013/147-6/8
10. Hill Benjamin. USAID Capital Markets Project. Comparison of national R(S)A with IAS [Electronic resource] - Access mode: http://msfz.min-fin.gov.ua%20_ua.pdf.
