FRS17 and the Sterling Double A Corporate Yield Curve

Frank S. Skinner and Michalis Ioannides

Journal of Business Finance & Accounting, 2005, vol. 32, issue 5‐6, 1141-1169

Abstract: Abstract: We argue that the appropriate discount rate used to report defined benefit pension plan liabilities in the financial statements is a yield derived from an estimate of a double A corporate yield curve. We show that parsimonious yield curve techniques are easily applicable to the sterling double A corporate bond market. Moreover, we find that with a careful selection of the data an objective and reliable yield curve can be obtained. In all we find that using a yield from a sterling double A corporate yield curve to obtain the value of defined benefit pension plan liabilities is a feasible alternative to the current recommendations of FRS17.

Date: 2005
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