Defining Issues | June 2021

 

Insight

FASB proposes ASU on risk-free discount rate expedient

Proposal to make the expedient electable by class of underlying asset and clarify its interplay with the implicit rate.

The amendments proposed by the FASB would change and clarify the risk-free discount rate practical expedient for private entity lessees.

Applicability

  • Private company and not-for-profit entity lessees

Relevant dates

  • June 16, 2021 – Proposed ASU issued on private entity risk-free discount rate practical expedient
  • July 16, 2021 – Comment deadline on proposed ASU
Effective date of proposed amendments All eligible entities

Annual periods – Fiscal years beginning after       

December 15, 2021

Interim periods – In fiscal years beginning after 

December 15, 2022

Early adoption allowed?

Yes, but no earlier than the entity’s adoption of ASC 842

 

Key impacts

The FASB proposes amendments to ASC 842 that would:

  • If elected, permit private entity lessees to elect the risk-free discount rate practical expedient by class of underlying asset, instead of requiring it to be applied to all leases. 
  • Clarify that a lessee would still use the rate implicit in the lease when it is readily determinable even if it has elected the risk-free rate discount rate expedient.

The proposed ASU has a 30-day comment period. The proposed amendments will only become GAAP if and when the Board issues a final ASU.

Report contents

  • Applicability
  • Fast facts, impacts, actions
  • Background
  • Proposed amendments to the practical expedient
  • Proposed effective date and transition methods

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