Two PIC Q&As Approved

The Philippine Interpretations Committee (PIC) has approved Questions and Answers (Q&As) on the discount rate for post-employment benefit obligations and on government loans with low interest rates. The Q&As have been approved for issuance by the Financial Reporting Standards Council (FRSC).

PAS 19.78 – Rate used in discounting post-employment benefit obligations

PAS 19, Employee Benefits, provides that the rate used to discount post-employment benefit obligations shall reflect the pattern of cash flow for the payment of retirement benefits. Employees become entitled to retirement benefits at the end of their service lives. A rate that would be reflective of a one time payment upon maturity is that of a zero coupon instrument which has a single cash flow.

The Q&A states that if the discount rate reflects the yield for peso government bonds that pay out interest payments on a periodic basis over the term of the bond and the principal upon maturity, such rate may be converted to a zero coupon rate to reflect a reasonable estimate of the benefit payments.

PAS 20.43 – Accounting for government loans with low interest rates under the amendments to PAS 20

This Q&A provides guidance on the implementation of the amendments to PAS 20, Accounting for Government Grants and Disclosure of Government Assistance. The amendments shall be applied prospectively to government loans received in periods beginning on or after January 1, 2009, with earlier application permitted. Accordingly, government loans received prior to January 1, 2009 will continue to be accounted under the accounting treatment chosen under Q&A 2007-02.

The PIC Q&As are posted in the Philippine Accounting Standards section of the PICPA website.