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. Section one-introductionThe topic of this paper is the discount rate to be used when calculating the present value of an asset or liability for financial accounting and external reporting purposes. The objective is to provide an analysis that will be useful to those responsible for establishing accounting standards concerning the choice of discount rate.Discounting is the process of applying discount factors to a series of future numbers to determine a present value number. 2 This paper addresses the use of a present value calculation to establish the fair value Address for Correspondence: Leonard Eckel, Professor, School of Accountancy, University of Waterloo, Waterloo Ontario Canada, N2L 3G1. leckel@uwaterloo.ca, (519) 888-4567 x6523, Fax: (519)-888-7652. . steve.fortin@ mcgill.ca, (514) 398-4021, Fax: (514) 398-3876. Kathryn Fisher, Economic and Environmental Consultant, Dundas Ontario Canada. Kathyfisher2@sympatico.com *Corresponding author 1 We would like to acknowledge comments made by Bill Scott, Haim Falk, seminar participants at the Financial Reporting Conference, Cardiff, and an anonymous reviewer. 2 We do not address the use of the discounting process to determine the effective rate of interest. Draper et al (1993) discuss the theoretical assumptions implied by such a process when used for making accounting allocations. We do not deal with the use of the discounting process to determine the effective rate of interest.

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