.
Changes to discount rates used for
Employee Benefit Liabilities under
AASB 119
In accordance with AASB 119
Employee Benefits, employee
benefits liabilities that are not
expected to be settled wholly
within twelve months after
the reporting date must be
discounted to their present value.
Application
AASB 119 requires that the discount
rate used be determined by reference to
market yields on high quality corporate
bonds or, where there is no deep market
in such bonds, the market yields on
government bonds. This applies to all
entities except those in the public sector,
where the government bond rate is
required to be used.
For many entities, the effect of a 1-2%
increase in the discount rate is unlikely
to have a significant impact on the
carrying amounts of the employee
benefits liabilities. However, the
effect may be greater where, for
example, an entity has a defined
benefit superannuation scheme, or
a significant element of deferred
profit-based compensation. For listed
entities, a change to the measurement
of amounts to be disclosed in the
remuneration report in respect of
compensation for Key Management
Personnel might also arise.
Until recently, there has been a
widespread view that no market for
high quality corporate bonds existed
in Australia; therefore the government
bond rate was used by most entities. In
April 2015, Milliman Australia completed
research and issued a report that
concluded that there is evidence to
support a liquid corporate bond market
in Australia that meets the requirements
of AASB 119.
Consequently, the corporate bond rate
should be used to calculate relevant
employee benefits liabilities.
Audit
All entities, with the exception of notfor-profit public sector entities, must
use the corporate bond rate to measure
long-term employee benefits liabilities,
termination benefits and defined benefit
superannuation obligations.
It is expected that preparers and
auditors of financial statements will
consider materiality when dealing with
this change.
Under AASB 108 Accounting Policies,
Changes in Accounting Estimates
and Errors, a change in the discount
rate used will result in a change in the
accounting estimate. Therefore, it should
be accounted for prospectively, with any
gains or losses arising from the change
being recognised in the current period.
Comparatives are not restated.
It may be necessary to update
accounting policies and other wording
in the financial statements to reflect the
impact of this change.
The change to the discount rate
will only affect the measurement of
employee benefits under AASB 119.
There will be no effect on the method
of calculation for other liabilities, such
as share-based payments under AASB
2 Share-based payments, or liabilities
arising in accordance with AASB 137
Provisions, Contingent Liabilities and
Contingent Assets.
Discount rate
Milliman Australia have provided
data that sets out the market rate for
corporate bonds within Australia. The
report for June 2015, which summarises
the data and methodology used and
contains discount rates for periods up to
50 years, can be found on the Milliman
Australia website.
The spot rates at 30 June 2015 for
bonds of maturities of up to 10 years are
outlined in the following table.
Talk to one of our advisors
Term (years)
Please contact your local Crowe Horwath
advisor to find out how we can assist you.
1
David Munday
Partner, Audit & Assurance
david.munday@crowehorwath.com.au
Tel +61 3 9258 9564
Mobile 0400 400 505
Alison Flakemore
Partner, Audit & Assurance
alison.flakemore@crowehorwath.com.au
Tel +61 3 6210 2525
Mobile 0418 193 225
0.946075
5
6
7
sean.mcgurk@crowehorwath.com.au
Tel +61 8 9488 1162
Mobile 0418 643 890
brendan.worrall@crowehorwath.com.au
Tel +61 7 3233 3410
Mobile 0448 614 414
2.81%
4
Sean McGurk
Partner, Audit & Assurance
Brendan Worrall
Partner, Audit & Assurance
Discount factor
3
@CroweHorwath_AU
Crowe Horwath Australia
leah.russell@crowehorwath.com.au
Tel +61 2 9619 1735
Mobile 0417 636 108
Spot rate
2
Connect with us:
Leah Russell
Lead Partner, Audit & Assurance
June 2015
8
9
10
2.58%
3.07%
3.33%
3.58%
3.79%
3.98%
4.15%
4.29%
4.42%
The spot rate used should be based
on the maturity date of the employee
benefit in question and on the expected
date of settlement. For example, a
deferred compensation arrangement
payable in two years should be
discounted at an annual rate of 2.81%.
For benefits which are payable at
a different date for each employee
(for example, long service leave), it
would be impractical to calculate each
employee’s balance using a different
discount rate. In such cases, an
estimate should be made. For example,
the average period until maturity across
all employees may be estimated, say,
to be around three to four years.
Annual leave provisions
AASB 119 provides that annual leave
is measured based on the amount
expected to be taken or settled.
Therefore, for employees with larger
balances, the portion of the balance
0.974816
0.913172
0.877039
0.838897
0.799862
0.760813
0.722384
0.684998
0.648922
expected to be taken after more than
12 months after the reporting date
could be discounted to its present
value using the rates outlined above.
This treatment applies to measurement
only. For presentation and disclosure,
the annual leave balance is classified
as a current liability. This is because
it does not meet the definition of a
non-current liability in AASB 101
Presentation of Financial Statements,
as there is not an unconditional right to
defer settlement for at least 12 months
after the reporting date.
How we can help
We can provide the full breadth of
audit and assurance services from
financial statement audit to risk
management that meet your business
needs – and provide you with peace
of mind that you are managing the
risks in your business environment.
About Crowe Horwath
Crowe Horwath Australasia is the largest provider of practical accounting, audit, tax, business and financial advice to individuals
and businesses from a comprehensive network of over 100 offices. Crowe Horwath is part of a global accounting network that delivers high quality audit, tax and advisory services in over 100
countries. We are the relationship that you can count on – large enough to offer a range of expertise and skills – and small enough
to provide the personal touch.
Tel 1300 856 065
www.crowehorwath.com.au
The relationship you can count on
This fact sheet provides general information only, current at the time of production. Any advice in it has been prepared without taking into account your personal
circumstances. You should seek professional advice before acting on any material.
Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or
Territory other than Tasmania.
Crowe Horwath (Aust) Pty Ltd is a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal
entity. Crowe Horwath (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath
and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member.
Crowe Horwath (Aust) Pty Ltd ABN 84 006 466 351. July 2015