18.8 PBE’s Use of Private-Company (Non-PBE) Elections
In November 2021, the FASB issued ASU 2021-09, which allows lessees that are
private companies (not PBEs) to make an accounting policy election by class of
underlying asset, rather than on an entity-wide basis, to use a risk-free rate as the
discount rate when measuring and classifying leases (see Section 7.2.3 for more information). Before the
issuance of ASU 2021-09, ASC 842-20-30-3 permitted such lessees to “use a risk-free
discount rate for the lease, determined using a period comparable with that of the lease
term, as an accounting policy election for all leases” (emphasis
added).
An entity should exercise caution in using the alternative accounting
policies applicable to private companies (non-PBEs) if the entity expects that it may
undergo an IPO or that its financial statements or other financial information may be
included in another company’s SEC filing. Such an entity undergoing an IPO, even if it
qualifies as an EGC — or an entity whose financial statements or other financial
information may be included in another company’s SEC filing in the future under Rules
3-05, 3-09, and 4-08(g) — would be considered a PBE. Therefore, such an entity would no
longer be permitted to apply private-company (non-PBE) elections and any previously
elected private-company alternatives would need to be retrospectively eliminated from
the company’s historical financial statements before such statements or information can
be included in its IPO registration statement or other entities’ SEC filings.