Amendments to IAS 19

[janakmalvi]

Discount Rate for Employee Benefits (Proposed amendments to IAS 19)

September 2009

Main features of the proposals and their effect on Canadian GAAP
The ED proposes to eliminate the use of different discount rates to determine the present value of the defined benefit obligation by deleting from IAS 19 the requirement to use market yields on government bonds. The IASB intends to review the accounting for employee benefits more broadly in due course. The proposals are not intended to pre-empt that review.

To eliminate these differences, the ED proposes that the discount rate should in all cases be based on market yields on high-quality corporate bonds at the end of the reporting period. The IASB explains that the proposed amendments would have the following advantages:

It would reduce the range of rates used. This would improve comparability in
• financial statements across entities and through time for the same entity (because markets for high-quality corporate bonds may not remain deep over time). In jurisdictions that do not have a deep market in high-quality corporate bonds, entities would no longer systematically report liabilities that are higher than equivalent obligations in other jurisdictions.
Entities would no longer need to assess whether a particular corporate bond
• market is deep.

Since estimating the yield on a bond is essentially the same task as estimating the fair value of the bond, the ED proposes to replace paragraph 81 of IAS 19 with a cross-reference to IAS 39 Financial Instruments: Recognition and Measurement as a means of providing appropriate guidance for estimating bond yields. The IASB
expects to replace that guidance in 2010 when it issues an IFRS resulting from the proposals in the Exposure Draft, "Fair Value Measurement," published in May 2009.

Currently, EMPLOYEE FUTURE BENEFITS, paragraphs 3461.050-.055, and Q&A 41R of the Second Edition of the CICA’s Employee Future Benefits Implementation Guide address the rate used to discount the accrued benefit obligation for defined benefit plans. When a deep market does not exist for high-quality corporate bonds, Canadian GAAP already requires an entity to use professional judgment to determine the appropriate discount rate. It suggests that an entity start with the yield on Government of Canada bonds and add an appropriate adjustment to reflect the risk characteristics of high-quality corporate bonds.

Timing of adoption

The IASB has not yet determined the effective date of the proposed amendments to IAS 19. However, it currently expects to finalize any amendments resulting from the ED as soon as possible to make them available for early adoption by entities with December 2009 year ends. Assuming the IASB’s timetable is met, the AcSB intends to incorporate the amendments into Canadian GAAP as part of the IFRSs to be adopted by publicly accountable enterprises. Publicly accountable enterprises are required to adopt IFRSs as Canadian GAAP for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011. Other entities may choose to adopt IFRSs.

The AcSB proposes not to amend Canadian GAAP before the changeover to IFRSs since Canadian GAAP already takes into account the spread between the yields on government bonds and the yields on corporate bonds in the absence of a deep market for high-quality corporate bonds.

Comments requested

The AcSB encourages Canadian stakeholders to respond to the IASB on its ED. The Invitation to Comment in that ED lists specific questions on which the IASB would like input. The AcSB requests that comment letters be sent directly to the IASB with a copy to the AcSB.
The AcSB would like input from Canadian respondents on the following additional question regarding the proposed amendments:
Do you believe that the proposed amendments would present any difficulties for Canadian entities? If so, please specify the difficulties.
Responses to this additional question should be sent directly to the AcSB.
The deadline for commenting to the IASB on its ED is September 30, 2009. Responses to the AcSB on the additional question set out above are due on October 8, 2009.