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“This, as the UK's experience has proved, is not likely to be popular with companies. That is because their pension fund liabilities are exposed for all to see rather than, as in the old days, smoothed out so the true position was obscured. Now the American market is going to have to learn the same lessons.
“In the UK, companies are - thanks to FRS17 - starting to tell it like it is. As Sir David says: 'The old UK pensions standard was based on actuarial values, and the disclosure smoothed the figures. This meant that you could have an enormous deficit in the fund, but the company would be showing an asset in the accounts. The underlying deficit was never apparent.'
“Over time, he thinks FRS17 will come into its own. Without the old system of smoothing the figures, the health of the pension fund might start to embarrass companies. This, he says, is a good thing. 'FRS17 is there to ask the questions. If there are three years of deficit, people will start asking if the company can afford their pension promise - and companies will stop making promises they cannot afford. That is a service to companies.'
“As he likes to do, he puts it into plain language. 'If your own figures showed your overdraft had increased every year for three years, then you could hardly argue that the facts were somehow different if you could smooth the figures and show it all in a pleasant light.'
The UK's pension crisis has nothing to do with accounting, he says. The root of the problems lies elsewhere: people living longer; the chancellor of the exchequer taking an extra £5bn a year out of the pension funds; and interest rates falling and exposing the problems of annuities guaranteeing 10 per cent returns. 'It is nothing to do with FRS17. All the standard has done is show the problems. And that is why I think it is a pretty good standard.'