The Group of 100 (in conjunction with the Actuaries Institute of Australia) commissioned Milliman Australia (Milliman) to undertake research in relation to the corporate bond market in Australia. Specifically, the objective of the research was to determine whether there was a sufficiently observable, deep and liquid market in high quality corporate bonds in Australia that would meet the requirements of Australian Accounting Standard 119, ‘Employee Benefits’ (AASB 119) with respect to discounting employee benefit liabilities.
To the extent that there was sufficient support for a deep and liquid market, the goal was then to determine a methodology to derive a full discount rate curve allowing for possible limitations in available corporate bond market data, to enable the development of a standardised set of discount rates which would be made publicly available. Assuming all criteria could be satisfied, the discount rate curve would then be produced by Milliman and made available as a transparent central reference point for all entities to use on an ongoing basis.
The research concluded that there is a sufficiently observable, deep and liquid market in high quality Australian corporate bonds which satisfy the accounting requirements.
Similar methodologies are currently utilised in other countries, including Canada, Sweden and Norway.
The first set of discount rates will be made available in June 2015 based on May 2015 data, for use in the preparation of accounts for the year ended 30 June 2015, with rates to then be produced quarterly thereafter.
Peter Meehan, CEO of the Group of 100, said “By using these new discount rates, rather than the Government bond rate, companies will be able to reduce their employee liabilities and, in the majority of cases, their expense. This change will benefit businesses of all sizes but will have the largest impact on those companies with large numbers of employees and those with Defined Benefit Superannuation Funds.”
The major accounting firms have provided input throughout the research and methodology development process, although the actual rates used by any entity will still be subject to audit by their audit firm (where applicable).
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