RBA clarification on amendments to requirement for valuation of the scheme funds

Further to the amendments issued by RBA vide legal notices 18-22 dated 21st December 2023 and the technical advisory issued by the Institute of Certified Public Accountants of Kenya (ICPAK) on the valuation of retirement benefits schemes' assets and accounting for changes in fair value of debt instruments, a joint meeting between the Retirement Benefits Authority (RBA) and ICPAK was held in Nairobi on 8th February 2024.

Following the deliberations, we wish to provide the following guidance:

1. That Retirement Benefits Schemes will continue to prepare financial statements in accordance with International Financial Reporting standards (IFRS) and International Accounting Standards(IAS), and specifically in compliance with IAS 26. We clarify that the legal notice 18 of 2024 on amendments to the requirements for valuation of the scheme funds set out in Regulation 5 (2) (e) (i) of the Retirement Benefits (Managers and Custodians) Regulations, 2000 is applicable only in the report prepared for trustees and not in Financial Reporting. All preparers of financial statements and auditors are urged to proceed with the requirements and understanding as required in the existing International Financial Reporting Standards(IFRS).

2. The amendments to the provisions relating to the determination of net interest to be declared and credited to members as amended by legal notices numbers 19-22 of 2024 focuses on disclosure requirements by Trustees to Members. The legal notice specified that the net return declared and credited to members' accounts should exclude unrealized gains and losses from changes in the fair value of debt instruments (bonds) held by the scheme at the close of the financial year. ICPAK had noted that according to the fundamental principles of accounting, the debit and credit approach should be used to account for the changes in the fair value of debt instruments affecting the net return declared and credited to members' accounts. A proposal had been made on the basic understanding that losses cannot be deferred but ought to be considered in determining and accounting for unrealised gains and losses.

The deliberations proposed further engagements to guide on this matter as it does not affect the financial statements. It is therefore guided that the net return declared and credited to members' accounts should exclude unrealized gains and losses from changes in the fair value of debt instruments (bonds) held by the scheme at the close of the financial year.

3. It is further clarified that the report by Trustees to members shall include a memorandum detailing the basis of determination of the net return.

4. Both parties have agreed to work collaboratively in the regulation of both the retirement benefits industry and the accountancy profession in furtherance of upholding public interest. ICPAK & RBA will work on a collaborative engagement to develop illustrative financial statements that will guide both the financial reporting and the reports prepared for trustees that will be in line with both the standards and the regulations as issued.