Search
Certified Public Accountants
& Business Consultants

FASB Proposes Improvements To Discount Rate Guidance For Lessees

Contact Our Team

The FASB has issued an Exposure Draft, requesting comment by July 16, 2021, related to Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities to provide private companies, not-for-profit entities and employee benefit plans more flexibility in how the discount rate would be determined.
July 1, 2021

The FASB has issued an Exposure Draft, requesting comment by July 16, 2021, related to Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities to provide private companies, not-for-profit entities and employee benefit plans more flexibility in how the discount rate would be determined. Topic 842 allows lessees that are not public business entities to elect a practical expedient, which enables them to use a risk-free rate as a discount for leases.

The amendment in this Exposure Draft would allow those lessees to make the risk-free rate election by class of underlying asset, rather than for the entity as a whole. Additionally, when the rate implicit in the lease is readily determinable for any individual lease, the lessee would use that implicit rate, rather than the risk-free rate, regardless of whether the election has been made by the entity.

The effective date for the Exposure Draft, if approved, is the implementation date of Topic 842 for those entities that have not yet adopted this guidance. At the date of implementation, the entity is required to present either retrospectively to the earliest period presented or on a modified retrospective basis with a cumulate-effect adjustment to the opening retained earnings balance.

For entities that have adopted Topic 842, this Exposure Drat would be effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022 with early adoption permitted. For these entities, the amendment would be applied on a modified retrospective basis.

The full text of the Exposure Draft is available here.

 

Readers should not act upon information presented without individual professional consultation.

 

 


For more information, please contact: