The rate of discount that must be used to measure employee benefit liabilities under AASB119 is changing to a corporate bond yield as opposed to the government bond yields used at the moment. This applies to defined benefit superannuation and long service leave liabilities from reporting periods on or after 30th June, 2015. The reason is that accounting standards require a government bond yield unless there is a deep market in high quality corporate bonds. Following a research paper commissioned by the Institute of Actuaries of Australia and the Group of 100, the report concluded a change to corporate bond rates is supported.
Milliman has been commissioned by G100 to calculate and publish a bond yield curve for AA rated (and above) corporate bonds on a quarterly basis starting June 2015. The corporate bond yields will be higher than the government bond rate, resulting in a greater discount factor and a smaller liability provision. Share based payments under AASB2 and not-for-profit entities are affected by this change.
In the year of transition to the high quality corporate rate, the difference from the basis change will flow through profit and loss (long service leave) or as an actuarial gain recognised in other comprehensive income (defined benefit superannuation liabilities). The accounts will need disclosure about the change in discount rate. Key management personnel remuneration amounts disclosure will also be affected.
Since the yield curve will only be available in the first half of June, we visualise some time pressures to meet company financial reporting deadlines – especially for listed entities. Consequently, any requests for actuarial calculations in this area would be appreciated as soon as possible to facilitate work flow scheduling. The one-off adjustment is likely to be large. We will be writing separately to companies using NetActuary services to quantify self insured workers compensation liabilities.
The NetActuary Team