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Among to the issues to emerge at the meeting, intended to take soundings from board members, were defining the discounting issue as opposed to a wider financial reporting issue; the challenge of applying an entity-specific measurement; the notion of a risk premium; and the relationship between taxation and discounting.
In relation to the first of the four issues, IASB member Patrick Finnegan said the confusion of consistency with uniformity was a key issue.
“Cashflow-based … and present-value measurement are similar, but they may not be identical,” he said. “That is different from the selection of a discount rate. There is always going to be differences in judgements … you’re never going to get uniformity.”
Of particular interest to defined benefit plan sponsors, IASB vice-chairman Ian Mackintosh pointed to the problems that can arise when the notion of an entity-specific measurement is applied in practice.
“I don’t assume the market value is a better indicator than the value in use,” he said.
Vatrenjak responded: “I am not arguing to say we should scrap entity-specific [discount rates] because I for one see value in using entity-specific values, [as] it allows companies the opportunity to actually show what is unique about them, what is specific.
“Let’s see if this really is a problem … [and] how that would be solved by simply tightening the description of this entity-specific measurement.”
Until now, the IASB’s research effort on discount rates has operated at a low level.