Title: ADJUSTING THE PBO UNDER IAS 19 (PROJECTED UNIT CREDIT) IN VENEZUELA AMID HYPERINFLATION AND VOLATILE DEMOGRAPHIC ASSUMPTIONS: A TECHNICAL DEFENSE OF AN ADJUSTMENT FACTOR
Authors:
Dr. Evaristo Diz Cruz and Dr. Jeffrey Query
Abstract:
In the Venezuelan context—characterized by episodes of hyperinflation and heightened macroeconomic volatility—the demographic assumptions that materially affect the measurement of defined benefit obligations under IAS 19 (NIC 19)—particularly turnover, disability, and early retirement rates—may be highly unstable. In many cases, entities do not possess sufficiently robust or statistically credible historical series to estimate age-specific rates. In such an environment, the explicit omission of certain decrements should not be construed as their nonexistence: it is, in effect, an implicit assumption that they are zero, and therefore a source of bias. This article defends the technical reasonableness and conceptual alignment with IAS 19 of adjusting the PBO calculated under the Projected Unit Credit method through a Demographic Completeness Factor (DCF) when the direct estimation of key decrements (disability and early retirement) is not feasible due to severe data constraints. We propose a model-governance framework, calibration by triangulation, and disclosure practices that make the adjustment auditable, defensible, and consistent with the principle of an unbiased best estimate.
Keywords: IAS 19 / NIC 19; Projected Unit Credit; PBO; hyperinflation; Venezuela; demographic assumptions; turnover; early retirement; disability; model risk; completeness adjustment.
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