Submission to the IASB - ED/2009/10 Discount Rate for Employee Benefits

30 September 2009

Sir David Tweedie
Chairman
International Accounting Standards Board
30 Cannon Street
London EC 4M 6XH
UNITED KINGDOM
commentletters@iasb.org.uk

Dear Sir David

ED/2009/10 Discount Rate for Employee Benefits

The Group of 100 (G100) is an organization of chief financial officers from Australia’s largest business enterprises with a purpose of advancing Australia’s financial competitiveness. The G100 is pleased to comment on this Exposure Draft.

Discount rate for employee benefits
Do you agree that the Board should eliminate the requirements to use government bond rates to determine the discount rate for employee benefit obligations when there is no deep market in high quality corporate bonds? Why or why not? If no, what do you suggest instead, and why?

The G100 supports the proposal to require the use of an estimated high quality corporate bond rate where a deep market does not exist. The use of a corporate bond rate better reflects the risks relevant to corporate activities than does a government bond rate.

Guidance on determining the discount rate for employee benefits
For guidance on determining the discount rate, do you agree that an entity should refer to the guidance in IAS 39 ‘Financial Instruments: Recognition and Measurement’ for determining fair value? Why or why not? If not, what do you suggest instead, and why?

The G100 agrees that the guidance in IAS 39 is appropriate in these circumstances.

Transition
The Board considered whether the change in the defined benefit liability (or asset) that arises from application of the proposed amendments should be recognized in retained earnings or as an actuarial gain or loss in the period of initial application (see para BC10). Do you agree that an entity should:
apply the proposed amendments prospectively from the beginning of the period in which it first applies the amendments?

recognize gains or losses arising on the change in accounting policy directly in retained earnings?

Why or why not? If not, what do you suggest instead, and why?

The G100 believes that a change in the discount rate used is a change in accounting policy and as such the requirements of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ should apply. Accordingly, the gains and losses should be recognized as an adjustment to opening retained earnings of the period in which the amendments are first applied.

The G100 also agrees with the IASB’s reasons (BC8) for requiring the change in accounting policy to be applied prospectively.

Yours sincerely

Tony Reeves
National President