COMMENTS AND INSIGHTS

• Economic factors have rendered the G-Sec rates very volatile and a significant decrease is seen in the rates over the last year. G-sec rates have reduced on an average by 20 basis points when compared to March 2020 rates with a fall being seen for the 10year bonds by almost 70 basis points.
• Rates, however, have increased on an average by approximately 15 basis points when compared with June rates. For a short and medium term period up to 7 years, there has been an improvement of the G-Sec rates by approximately 30 basis points when compared with June. Such increases will contribute to a decrease in the employee benefits obligation for a 3-month period.
• The volatility has been heightened during the last few months due to the uncertainty of the economic impact of the pandemic in the medium and long term. A reduction in the rates will give rise to Actuarial Losses. We have seen some of these losses be balanced with a dampening of salary increase expectations by companies. The net impact on obligation calculations is largely determined by the gap between the salary growth rate and the discount rate. However, even a small change when deciding assumptions shouldbe done with careful consideration of the entity’s expectations and after discussion withthe Actuary and Auditor so that they reflect the best long term estimates.

COMMENTS AND INSIGHTS

• The G-sec rates have reduced significantly during the lockdown, with major impact being seen for the tenure of 5 and 10 years.
• With the easing of the lockdown, G-Sec rates have shown a steady improvement.
• Rates for longer durations seem less volatile, and have shown steady improvement since Unlock 3.0on account of the kick-starting of various economic activities.

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Some Important links:-

Indian Accounting Standard 19 - https://indasaccess.icai.org/download/2019/asb0719/272/272asb-cias-2019-20-vol2-24.pdf

Accounting Standard 15 (R) - https://www.mca.gov.in/Ministry/notification/pdf/AS_15.pdf

Volatility in the Interest Rate – March ://www.kapandit.com/assets/newsletter/KAP_Update_Volatility_in_the_Interest_RateMarch_2020.pdf

‍Interest Rates Updates – June 2020 - http://www.ka-pandit.com/assets/newsletter/Interest-Rates-Updates-June-2020.pdf

Guidance issued by AASB amid Covid-19 - http://www.ka-pandit.com/assets/newsletter/A-Synopsis-of-the-Guidance-Issued-by-Auditingand-Assurance-Standards-Board-amid-Covid-19.pdf

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