27 July 2007

Mr John Broadbent
Head - Domestic Markets Department
Reserve Bank of Australia
GPO Box 3947
SYDNEY NSW 2001

Dear Mr Broadbent

High Quality Corporate Bond Market

The Group of 100 (G100) is an organisation representing the interests of chief financial officers and senior finance executives of Australia’s major business enterprises.

Following a recent amendment to Accounting Standard AASB 119 ‘Employee Benefits’ (the Australian equivalent to IAS 19 ‘Employee Benefits’) a number of our members have raised the question as to whether an active and liquid market for high quality corporate bonds exists in Australia.

AASB 119 requires the discount rate used in measuring employee benefit liabilities, including defined benefit pension plan liabilities, to be determined by reference to the market yield on high quality corporate bonds. Prior to the recent amendments AASB 119, paragraph Aus 78.1, included guidance that no such market exists in Australia. In the absence of an active and liquid market for high quality corporate bonds AASB 119 requires the use of a discount rate determined by reference to the market yield on government bonds.

When amending AASB 119 the AASB removed guidance indicating its view that an active and liquid market in high quality corporate bonds did not exist in Australia. In the absence of this guidance there is significant diversity of views by preparers and their advisors in determining whether such a market exists in Australia.

In view of the potential impact and significance of using a discount rate determined on a different basis, the G100 is seeking guidance from the Reserve Bank of Australia on whether there is an active and liquid market in high quality corporate bonds in Australia.

A timely resolution of this issue will clarify how companies should determine the discount rate used when implementing the requirements of AASB 119.

I look forward to receiving your views on this issue.

Yours sincerely

Tom Honan
National President