The Choice of Discount Rate for External Reporting Purposes: Considerations for Standard Setting

Currently, there is no general standard concerning the choice of the discount rate to be used when calculating the present value of an asset or liability for external reporting purposes. This paper provides an analysis of the issues that should be considered in establishing such a standard. Six candidate rates are evaluated based on six criteria of high quality accounting standards identified from the literature. No rate candidate dominates on all points. Accordingly, the paper proposes the underlying structure of a comprehensive discount rate-choice accounting standard, which would resolve most of the issues identified in the paper.