Arbitrary manipulation of discount rates can ‘create’ reported capital, misleading prospective investors, creditors or policyholders.
Creation comes from use of discount rates in excess of the risk-free rate.
The use of discount rates that are in excess of risk-free rates is a pervasive issue that affects all firms with medium to long term debt, often with a material impact on the accounts.
This approach is rejected by all financial economists and has been raised as a serious concern by many stakeholders.
The consultation document can be found here. Our response, including an example of how capital can be manipulated, is here.
