FASB Accounting Standards Update (ASU) No. 2021-09, Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities.
For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
ASC 842 does not address what is meant by the phrase “class of underlying asset.” Before ASU 2021-09, entities were allowed to make other accounting policy elections by class of underlying asset, so entities may already have policies in place on how they define asset class. See Section 188.8.131.52 of Deloitte’s Roadmap Leases for information about applying this concept.
As amended by this ASU, ASC 842-20-50-10 states: “A lessee that makes the accounting policy election in paragraph 842-20-30-3 to use a risk-free rate as the discount rate shall disclose its election and the class or classes of underlying assets to which the election has been applied.”
The cumulative-effect adjustment to the lease liability and corresponding ROU asset should be calculated by using the remaining lease term and the discount rate as of the date of the adoption of ASU 2021-09. This calculation applies to all leases existing as of the ASU’s adoption date.
As clarified by ASU 2021-09, the risk-free rate can only be applied for lessee leases when the rate implicit in the lease is not readily determinable.