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We comment on pensions discount rate ED

  • Deloitte Comment Letter Image

01 Oct 2009

Deloitte Touche Tohmatsu has submitted comments on IASB Exposure Draft (ED) 2009/10 Discount Rate for Employee Benefits, which was published 21 August 2009. IAS 19 Employee Benefits requires an entity to determine the rate used to discount employee benefits with reference to market yields on high quality corporate bonds.

However, when there is no deep market in corporate bonds, an entity is required to use market yields on government bonds instead. The global financial crisis has led to a widening of the spread between yields on corporate bonds and yields on government bonds. As a result, entities with similar employee benefit obligations may report them at very different amounts. The ED proposes to eliminate the requirement to use yields on government bonds. Instead, entities would estimate the yield on high quality corporate bonds. In view of the urgency of the issue and the limited scope of the proposals the IASB set a shortened period for comments on the ED. The IASB intends to permit entities to adopt the amendments that arise from this ED in their December 2009 financial statements. 

An excerpt from our letter of comment on the ED:

We believe it is appropriate for the Board to proceed with the proposed amendment relating to the determination of the discount rate for employee benefit obligations, while keeping, for the time being, the general principle of determining this discount rate by reference to market yields on high quality corporate bonds. The urgency to act on the matter is justified by the significant increase of the spread between the yield on high quality corporate bonds and on government bonds as a result of the financial crisis. However, as explained in our detailed comments, we believe further clarifications are required to ensure that the amendment is applied consistently by entities. In particular, we believe that the Board should clearly establish the objective of estimating the discount rate in the absence of a deep market for high quality corporate bonds.

Click to download our letter on the ED Discount Rate for Employee Benefits (PDF 38k). All past letters comment are Here.

 

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