Lessee discount rates under ASC 842

Determining an appropriate lessee discount rate under ASC 842 will frequently be neither a straightforwarded exercise nor the same as under ASC 840, particularly for private entities.

Applicability

All lessees that have applied or will apply ASC 842

Effective	Public companies	Public not-for-profit entities	Private entities
Annual periods – Fiscal years beginning after	December 15, 2018	December 15, 2019	December 15, 2021
Interim periods – In fiscal years beginning after	December 15, 2018	December 15, 2019	December 15, 2022
Early adoption allowed?	N/A	N/A	Immediately

Provides guidance about how a lessee determines the discount rate for a lease under ASC 842
Discusses how ASU 2021-09 changes the private entity lessee risk-free discount rate practical expedient
Reminders and examples about how to determine the lessee’s incremental borrowing rate

Report contents

Key impacts
Rate implicit in the lease
Risk-free discount rate practical expedient (private entities only)
Incremental borrowing rate
Examples

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Leases - Enhanced focus on lessee discount rates

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FASB amends risk-free discount rate expedient

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

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Handbook: Leases

Latest edition: Our in-depth guide to ASC 842 – with Q&As, interpretive guidance and examples.

Leases: Hot Topics

These focused Hot Topics are intended for those with an interest in the detailed application of ASC 842.

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