Discount Rate
Due to the long timescales involved, post-employment benefit obligations are discounted. Also, the whole obligation should be discounted, even if some falls due within a year.[95] The standard requires that the discount rate reflect the time value of money but not the actuarial orinvestment risk. Furthermore, the discount rate should not reflect the entity-specific credit risk borne by the entity's creditors, nor should it reflect the risk that future experience may differ from actuarial assumptions.[96] The discount rate should reflect the estimated timing of benefit payments. For example, an appropriate ratemay be quite different for a payment due in, say, ten years as opposed to one due in twenty. The standard observes that in practice, an acceptable answer can be obtained by applying a single weighted average discount rate that reflects the estimated timing and amount of benefit payments and the currency in which the benefits are to be paid.[97]
The rate used should be determined ‘by reference to’ the yield (at the balance sheet date) on high quality corporate bonds of currency and term consistent with the liabilities. In countries where there is no deep market in such bonds, the yields on government bonds should be used instead.[98]
In our view, the requirement that the rate be determined ‘by reference to’ high quality bond rates adds an important nuance — in particular, it is very different from requiring the rate to be that of an observable instrument. It means that observed current market yields may need to form the starting point for this determination.
The standard gives an example of this in the context of the availability of bonds with sufficiently long maturities. It observes that in some cases, there may be no deepmarket in bonds with a sufficiently long maturity to match the estimated maturity of all the benefit payments. In such cases, the standard requires the use of current market rates of the appropriate term to discount