News from Davidsons
Employee Entitlements: Discount Rates
Under AASB 119 Employee Benefits, long-term employee benefits such as Long Service Leave (LSL) are employee benefits (other than post-employment benefits and termination benefits) that do not fall due wholly within 12 months after the end of the period in which the employees render the related service. Benefits that fall under this category are required under the standard to be discounted to present value.
Prior to 30 June 2015 it was common practice to use government bond rates in discounting long-term benefits due to the belief that Australia did not have a sufficiently deep market in high quality corporate bonds. In response, the Group of 100 commissioned Millman to undertake research on developing a standardised set of discount rates to be made publicly available for the purpose of discounting employee benefit liabilities under Australian Accounting Standard 119 (AASB 119).
Entities can now apply corporate bond rates to their employee provisions in line with the standard. These rates are typically higher than government rates and may result in lower employee benefit provisions & expenditure.
It is important to note that corporate rates cannot be applied to not-for-profit or public sector entities.
Corporate bond rates are issued on a monthly basis by Milliman. These can be downloaded by clicking HERE