The emergence of an accounting practice –An analysis of how the changes in interpretation and application of IAS 19 paragraph 83 resulted in a new accounting practice in Sweden

Abstract

Background and discussion: IAS 19 paragraph 83 addresses the estimation of the discount rate used for determination of the present value of defined benefit pension plans. Until 2010, the paragraph was consistently applied within Sweden, when all companies agreed that the yield on government bonds should be used as a reference for the discount rate. A number of companies then started to refer to the yield on mortgage bonds, a reference rate that is not one of the stated alternatives in the paragraph. This action has been debated among the accounting practitioners in Sweden, as a possible deviation from the standard. A new interpretation and application of the paragraph has led to the emergence of a new accounting practice within Sweden, without an actual change in the regulation. Purpose: The purpose of this thesis is to analyze how the changes in interpretation and application of IAS 19 paragraph 83 resulted in a new accounting practice in Sweden. Research design: Two research approaches are used in this study. First, disclosures in the annual reports of all listed companies on NASDAQ OMX Stockholm Large Cap are studied, to find the reference rates and discount rates used. Second, interviews with four companies, the Big Four audit firms and one bank are conducted, to collect their opinions regarding the situation. To achieve the purpose of the thesis, the results are then analyzed through the regulation, the situation in Sweden and two explanatory theories. Results and conclusions: The study shows that more and more companies have started to use the YMB while fewer companies use the YGB. Also, it was a significant spread between the highest and lowest discount rate used. The main explanations for the dispersion in the use of reference rates are the changes in the bond markets, the principlebased regulation, incentive driven accounting practitioners and that companies strive for legitimacy by imitating each other. Suggestions for further studies: As further studies it would be interesting to expand the analysis and interview more companies on Large Cap. It would also be interesting to analyze Small Cap and Mid Cap to see if the same results would be found. Also, it would be interesting to conduct statistical tests to investigate the correlation between the level of discount rates and reference rates used.