ACCOUNTING STANDARDS UPDATE 2021-09—LEASES (TOPIC 842): DISCOUNT RATE FOR LESSEES THAT ARE NOT PUBLIC BUSINESS ENTITIESOverview
On November 11, 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2021-09, Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities.
The amendments in this Update provide lessees that are not public business entities with a practical expedient that allows them to make an accounting policy election to use a risk-free rate as the discount rate by class of underlying asset, rather than at the entity-wide level. An entity that makes the risk-free rate election is required to disclose which asset classes it has elected to apply a risk-free rate. The amendments require that when the rate implicit in the lease is readily determinable for any individual lease, the lessee 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.
The amendments in this Update affect lessees that are not public business entities, including all not-for-profit entities (whether or not they are conduit bond obligors) and employee benefit plans (whether or not they file or furnish financial statements with or to the U.S. Securities and Exchange Commission).
Transition and Effective Dates
Entities that have not yet adopted Topic 842 as of November 11, 2021, are required to adopt the amendments in this Update at the same time that they adopt Topic 842 using the existing transition provisions.
For entities that have adopted Topic 842 as of November 11, 2021, the amendments in this Update are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Earlier application is permitted. Entities are required to apply the amendments on a modified retrospective basis to leases that exist at the beginning of the fiscal year of adoption of a final Update. The adoption of the amendments should not be considered an event that would cause remeasurement and reallocation of the consideration in the contract (including lease payments) or reassessment of lease term or classification.
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