FASB Issues Proposed ASU on Discount Rate for Lessees That Are Not Public Business Entities

The FASB has issued a proposed Accounting Standards Update (ASU), Discount Rate for Lessees That Are Not Public Business Entities. The primary purpose of the proposed ASU is to reduce the costs of implementing the leasing guidance for entities that are not public business entities (PBEs). The FASB is releasing the proposal in response to concerns from private-company stakeholders about the practical expedient in ASC 842 that permits non-PBEs to elect to “use a risk-free rate as the discount rate for all leases.” The proposal would address these concerns by allowing “lessees that are not public business entities to make the risk-free rate election by class of underlying asset, rather than at the entity-wide level. It also would require that, when the rate implicit in the lease is readily determinable for any individual lease, a lessee would use that rate (rather than a risk-free rate or an incremental borrowing rate), regardless of whether it has made the risk-free rate election.”

Comments on the proposed ASU are due by July 16, 2021. For more information, see the press release on the FASB’s Web site.