International Accounting Standards Board
30 Cannon Street
London EC4M 6XH
United Kingdom
29 September 2009
Exposure Draft, Discount Rate for Employee Benefits
Dear Sirs
The Roche Group has a turnover of CHF 46 bn. a year (EUR 29 bn.) derived from our global
healthcare business - pharmaceuticals and diagnostics - and employs over 80,000 worldwide. We
have a market capitalisation (end 2008) of CHF 141 bn. (EUR 95 bn.) We have been preparing our
consolidated financial statements according to IFRS/IAS since 1990 and therefore have a
substantial interest in how these will develop.
We warmly commend and thank the Board for taking the initiative to provide this pragmatic
(“quick-fix”) solution to a problem which has given preparers and users in certain regions
substantial difficulties. The specific remarks below represent minor, hopefully constructive
suggestions for improvement of the proposal and in no way detract from our support for the main
thrust of the ED. We trust that the Board will be able to finalise the change in time for 2009 yearends.
We would, however, like to take the opportunity to encourage the Board to consider taking on to
their agenda a project to develop a generic principle on discounting. The discounting approaches
prescribed in various specific standards are sometimes quite different, and the development of a
principle would, we think, help improve the quality of financial reporting standards.
Question 1 – Discount rate for employee benefits
Do you agree that the Board should eliminate the requirement 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 not, what do you suggest instead, and why?
F. Hoffmann-La Roche AG
CH-4070 Basel
Switzerland
Corporate Finance Accounting &
Controlling
Bldg/Room 52/1205
Tel. +41 61 68 84234
Fax +41 61 68 84282
alan.dangerfield@roche.com
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Yes, we agree. Comparability, understandability and relevance will all be enhanced by the
elimination of the requirement to use government bond rates as the basis for the discount rate for
pension obligations in countries in which no deep corporate bond market exist.
Question 2 – Guidance on determining the discount rate for employee
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 pension liability is in itself not measured at fair value, and the guidance cited from IAS 39
relates to estimation of the fair value of individual bonds, not of whole-market yields. Although we
would end up pretty much in the same place, we suggest that the guidance in IAS 19 could be made
simpler and more relevant by, for instance, requiring the “proxy” rate for high quality corporate
bonds under such circumstances to be derived by adding to the local government bond rate the
current high quality corporate bond spread from a “foreign” market which is deep. This would be a
practical simplification.
Question 3 – Transition
The Board considered whether the change in the defined benefit liability (or asset) that arises from
application of the proposed amendments should be recognised in retained earnings or as an actuarial
gain or loss in the period of initial application (see paragraph BC10). Do you agree that an entity
should:
(a)apply the proposed amendments prospectively from the beginning of the period in which it first
applies the amendments?
(b) Recognise 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?
We have certain doubts whether the amendment leads to a change in accounting policy rather than
estimate. However, it seems to be rather a “grey-zone” matter as there are arguments for both
interpretations. Since it seems so “grey”, we would not dispute the Board’s decision, either on this
point or on the application, which seems to us practical.
We would nonetheless suggest that guidance on how to make the transition where the corridor
method is being employed could be made a bit more clear and specific.
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Sincerely,
F. Hoffmann-La Roche AG
Dr. Erwin Schneider
Head of Corporate Finance
Accounting & Controlling
Alan Dangerfield
Corporate Finance Accounting & Controlling
External Relations
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