Defining Issues | September 2021

 

Insight

FASB to amend risk-free discount rate expedient

Final ASU will make expedient electable by class of underlying asset and clarify its interplay with the implicit rate.

The final ASU will change and clarify the risk-free discount rate practical expedient for private entity lessees.

Applicability


ASC 842, Leases

  • Private company and not-for-profit entity lessees

Relevant dates

  • September 15, 2021 – FASB affirmed amendments in the proposal, and directed the FASB staff to draft a final ASU – Tentative decisions
  • July 16, 2021 – Comment deadline on proposed ASU
  • June 16, 2021 – Proposed ASU issued on private entity risk-free discount rate practical expedient
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 amendments to ASC 842 will:

  • 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 should 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 amendments will only become GAAP when the Board issues the 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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