IAS 19 — Discount rate: High Quality Corporate Bonds and regional market / currency zone

Date recorded:

Discount rate: High Quality Corporate Bonds


In October 2012, the Committee received a request for guidance on the determination of the rate used to discount post-employment obligations. The main concerns of the submitter were that:

  1. according to paragraph 83 of IAS 19 Employee Benefits the discount rate should be determined by reference to market yields at the end of the reporting period on high quality corporate bonds (HQCB);
  2. IAS 19 did not specify which corporate bonds qualify as HQCB.

In particular, the submitter asked the Committee whether corporate bonds with an internationally recognised rating lower than “AA” could be considered to be HQCB. The submitter noted that two views existed in practice:

  1. only AA bonds were considered HQCB; or
  2. corporate bonds with a rating lower than AA could be considered HQCB.

At the January 2013 meeting, the Committee requested the Staff to consult with the IASB:

  • to confirm that the underlying principle for the determination of the discount rate is set out in paragraph 84 of IAS 19 (2011), and is described as “the discount rate reflects the time value of money but not the actuarial or investment risk”;
  • to clarify about this sentence in paragraph 84;
  • to ask whether this sentence in paragraph 84 means that the objective for the discount rate for post-employment benefit obligations should be a risk-free rate; and
  • to confirm that IAS 19 should be amended to clarify that when government bonds are used to establish the discount rate in the absence of HQCBs, those government bonds used must themselves be high quality.

At the February 2013 IASB meeting, the majority of IASB members agreed.

At the March 2013 Committee meeting, the Staff noted that their proposed next steps were:

  • to bring to the May 2013 Interpretation Committee meeting a draft amendment to IAS 19 (narrow scope amendment) that will reflect the tentative decisions of the IASB in the February 2013 meeting;
  • to clarify in the draft amendment that in determining the discount rate an entity shall include corporate bonds with minimal or very low credit risk issued in other countries, provided that these bonds are issued in the currency in which the benefits are to be paid.

May 2013 meeting

Based on the previous discussions, the Staff provided recommended that:

  1. paragraph 84 of IAS 19 is amended to provide an objective for the discount rate assumptions; and
  2. paragraph 83 of IAS 19 is replaced with non-authoritative implementation guidance to support the objective in (a).

The discussion started with the proposed wording in paragraph 84, but it soon became apparent that there were several views from the Committee members on what the objective of the discount rate was. It was acknowledged that IAS 19 was not a new standard and the Committee had to work within its remit; also, the guidance about HQCB had originally come from the US. 

Some Committee members liked the proposed wording of paragraph 84 and some did not. One Committee member believed that removal of paragraph 83 would represent a fundamental change.

After a certain amount of general discussion during which some Committee members mentioned practical difficulties, the Chairman posed a question to the Committee about whether it should continue working on this given the amount of time and work the Committee and Staff had already spent on it. What the way forward might be?  

Majority of the Committee members believed that the best way forward would be to focus on the narrow question of the original submission (i.e. whether AA and lower rated bonds can be considered as HQCB) instead of the fundamental changes to IAS 19.

The Staff was asked to go back to the November 2012 decisions and to prepare a new paper about what was considered a ‘high quality’ in the context of HQCB taking into account the fact that the economic dynamics and rates change over time. The paper will be discussed in the July 2013 meeting.

There was also a comment that the discussion about HQCB resembled a discussion about most reliable fair value measurement (i.e. Levels 1-3).  In other words, the principle was clear but obtaining data seemed to be a problem.

In the July 2013 meeting, staff presented their view and the Committee members made various comments on the concept being an absolute concept rather than a relative concept. The Committee’s view was that it had applied enough resources to this issue and there was a clear majority of members who opted to stop the project but to amend the wording of the agenda decision to make it more robust. This included:

  • making clear the concept and explain that it is an absolute,
  • including paragraph regarding the discourse of extra information that may be advisable,
  • deleting the paragraph relating to quality bonds classification, and
  • revisit the paragraph relating to judgment as it should not change from period-to-period and should be consistent.


Discount rate: Regional market


In June 2013, Committee received a request to address explicitly as part of the “discount rate project” the issue of a regional market sharing the same currency. At the May 2013 meeting, the Committee requested the staff to refocus their work on whether corporate bonds with a rating lower than ‘AA’ can be considered to be high quality corporate bonds (HQCB).

The concern was that the Committee does not plan to issue a formal clarification regarding the application of the requirements of IAS 19 Employee Benefits to determine the discount rate to a regional market sharing the same currency (e.g. the Eurozone). The issues noted are:

  • the valuation of post-employment benefit obligations, notably in the current environment of low interest rates in Europe;
  • consistency of application of the requirements of IAS 19 in relation to the determination of the discount rate with reference to HQCB and with reference to a regional market sharing the same currency or currencies pegged to this regional currency;
  • according to paragraph 83 of IAS 19 in countries where there is no deep market for HQCB the market yields on government bonds shall be used;
  • the reference to ‘in a country’ could reasonably be read as including high quality corporate bonds that are available in a regional market to which the entity has access, provided that the currency of the regional market and the country were the same (e.g. the euro).”:

In January 2013 the Committee confirmed this position and clarified that “for a liability expressed in euro, the deepness of the market of high quality corporate bonds should be assessed at the Eurozone level”.

At the July 2013 meeting, a Committee member raised the issue of the scenario where the economic environment is unstable and if that were the case which Government Bond should be used. In such as case should preparers use Corporate Bonds on a currency basis or a country basis. The Committee members acknowledge there is dis-connect between currency and country and therefore proposed clarification of the wording of key concepts within the standard. There was general support for bonds to be kept at currency zone level; however there was reservation of whether government bonds should be used instead. Committee members ultimately agreed that High Quality refers to High quality within currency zone.



The Committee agreed with the Staff’s proposal that in determining the discount rate an entity shall include HQCB issued by entities operating in other countries, provided that these bonds are issued in the currency the benefits are paid. The Committee also agreed that it should recommend to the IASB to clarify paragraph 83 of IAS 19 by deleting the reference to “countries”. There were no further comments raised on the proposed wording for the amendment in IAS 19, as presented by staff.

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