‍

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 45 basis points when compared to March 2020 rates with a fall being seenfor the 10-year bonds by almost 80 basis points.

➢ Rates, however, have decreased on an average by approximately 15 basis pointswhen compared with September rates.Such decreases will contribute to an increase in the employee benefitsobligation for a 3-month period.

➢ The volatility has been heightened during the last few months due to theuncertainty of the economic impact of the pandemic in the medium and long term. Areduction in the rates will give rise to Actuarial Losses. We have seen some of theselosses be balanced with a dampening of salary increase expectations bycompanies. The net impact on obligation calculations is largely determined bythe gap between the salary growth rate and the discount rate. However, even asmall change when deciding assumptions should be done with carefulconsideration of the entity’s expectations and after discussion with the Actuaryand 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 Unlock3.0 on account of the kick-starting of various economic activities.

➢ As a result of decreasing G-sec rates as at Dec 2020 compared with Dec 2019, a booked Actuarial Loss will be seen due to change in financial assumptions for IFRS reporting, if all other assumptions remain the same as last year.

‍

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

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

Interest Rate Updates: -

September 2020 - https://www.ka-pandit.com/assets/newsletter/Interest_Rates_Updates_September_2020.pdf

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

March 2020 - http://www.ka-pandit.com/assets/newsletter/KAP_Update_Volatility_in_the_Interest_Rate-March_2020.pdf-March_2020.pdf

‍

If you have any queries about this article or anything else related to measuring employee benefit costs, please get in touch with us at:

This material and the information contained herein prepared by M/S. K. A. Pandit Consultants & Actuaries (KAP) is intended to provide general informationon a particular subject or subjects and is not an exhaustive treatment of such subject(s). This material contains information sourced from third party sites(external sites). KAP is not responsible for any loss whatsoever caused due to reliance placed on information sourced from such external sites. By meansof this material, KAP is not rendering professional advice or services. This information is not intended to be relied upon as the sole basis for any decisionwhich may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you shouldconsult a qualified professional adviser. No entity in the KAP Network shall be responsible for any loss whatsoever sustained by any person who relies onthis material. ©2020 K. A. PANDIT ISO 9001:2015 CERTIFIED | ISO 27001:2013 CERTIFIED

‍

                            We work for you, wherever your business takes you!