The Case for Local Fair Value Discount Rates Under IFRS
Pensions, Vol. 16, No. 2, pp. 107-114, 2011
Posted: 28 Jun 2011
Date Written: June 28, 2011
In the Netherlands, listed companies and their pension funds have to apply the principle of fair value accounting with respect to valuation of pension liabilities for their financial statements. Both entities have to implement fair value accounting somewhat differently, as companies have to apply IFRS (IAS 19) and pension funds are required to follow Dutch financial reporting standards (RJ 271). During the financial crisis it appeared that the pension funding status for companies improved substantially, while at the same time their pension funds reported huge solvency problems. This lead to the surprising situation that several companies were required to make additional cash contributions to their pension fund, while their own annual report showed a large pension surplus. To avoid such inconsistencies in the future, we propose that IFRS adopts local fair value discount rates for nominal accrued pension liabilities.
Keywords: accounting, discount Rate, fair value, IFRS, pension accounting, pension fund
JEL Classification: G23, G28, M41
Suggested Citation: Suggested Citation