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The International Accounting Standards Board (IASB) has published for public comment a proposal to amend the discount rate for measuring employee benefits. The proposals respond to calls from stakeholders to address a problem that the global financial crisis has made increasingly significant, which is the lack of transparency and comparability in reported values of employee benefits because entitites can come up up with very different valuations for similar benefits obligations.

At the moment, 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. But the global financial crisis has caused a  significant widening of the spread between yields on corporate bonds and yields on government bonds, thus distorting the values that will be arrived at when using one method over the other.

To address the issue expeditiously, the Board proposes to remove the requirement to use a government bond rate when there is no deep market in high quality corporate bonds. Instead, an entity would be required to estimate the rate for a high quality corporate bond using the guidance on determining fair value in IAS 39. Comments on the exposure draft should be submitted no later than 30 September 2009.