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IAS 19 — Determination of the discount rate in a regional market consisting of multiple countries sharing the same currency

Date recorded:

The project manager explained that the IFRS Interpretations Committee recommended that the IASB should propose an amendment to IAS 19 Employee Benefits through the annual improvements process in order to clarify that in determining the discount rate an entity shall include high quality corporate bonds issued by entities operating in other countries, provided that these bonds are issued in the currency in which the benefits are to be paid.

One Board member asked whether this would mean that a company within the Euro-zone has to include bonds from other countries of the Euro-zone and not only bonds issued in their own country and whether this also applied if there is a sufficiently liquid market in the entity’s own country. He was concerned that entities who only take bonds from their own country would be forced to change their accounting method.

Another Board member replied that he assumed this is only if there is no deep market in the country where the benefits have to be paid.

The implementation director replied that it was no change in accounting method but an increase of the population to calculate the discount rate.

It was discussed that it is already practice to use an external index such as iBoxx, which, for example, covers all of the Euro-zone and the amendment would give the legitimation to do so.

One Board member asked if countries that have a fixed exchange rate of their own currency with a major other currency should then also take bonds from countries were this major other currency is the legal currency.

The implementation director replied that those would not be included as although there is a fixed exchange rate, it is not the same currency.

The vice-chairman pointed out that it could have been the initial intention of the standard-setter to use currency-wide discount rates since at the time when IAS 19 was developed there were no currency unions and the term “countries” at that time could be seen as equal to the term “currencies”.

The Board members discussed various examples.

The vice-chairman suggested beginning to draft the Exposure Draft and while drafting, consider the discussions of today’s meeting. All Board members agreed.

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