About Discount Rate & Use in Actuarial Valuations
The discount rate is a key assumption used in the Actuarial valuation of employee benefit liabilities. Actuarial valuation primarily finds the Present value of the liabilities (or benefits), that are expected to be paid in the future. For this purpose, it is vital to use the appropriate discount rate. The various accounting standards have prescribed, for the purpose of Employee Benefit valuations, the basis for choosing the discount rate. It states that an entity should use the government bond yields (or corporate bond yields, where applicable) for a term that is equivalent to the maturity term of the liabilities. Because of the aforesaid Guidance, the year-on-year movement in the discount rate is reflected in the year-on-year fluctuations in the Company’s Profit and Loss and Balance sheet.