Defining Issues | November 2021

 

Insight

FASB amends risk-free discount rate expedient

Private entity practical expedient electable by class of underlying asset; interplay with implicit rate clarified.

Final amendments 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

  • June 16, 2021 – Proposed ASU issued on private entity risk-free discount rate practical expedient
  • July 16, 2021 – Comment deadline on proposed ASU
  • September 15, 2021 – FASB affirmed amendments in the proposal, and directed the FASB staff to draft a final ASU – Tentative decisions
  • November 11, 2021 – FASB issues final ASU
Effective date of proposed amendments Entities that adopted ASC 842 before final ASU issued  Entities that did not adopt ASC 842 before final ASU issued

Annual periods – Fiscal years beginning after                                                                                               

December 15, 2021

Adopt when the entity adopts ASC 842

Interim periods – In fiscal years beginning after 

December 15, 2022

Early adoption allowed?

Yes, as of beginning of fiscal year

 

Key impacts

The final amendments:

  • 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 must 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.

Report contents

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

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