{"id":1748,"date":"2021-12-10T11:12:00","date_gmt":"2021-12-10T18:12:00","guid":{"rendered":"https:\/\/cmcdllc.com\/?p=1748"},"modified":"2021-12-27T11:18:54","modified_gmt":"2021-12-27T18:18:54","slug":"nonpublic-companies-can-use-risk-free-rate-under-the-new-lease-standard","status":"publish","type":"post","link":"https:\/\/cmcdllc.com\/?p=1748","title":{"rendered":"Nonpublic companies can use risk-free rate under the new lease standard"},"content":{"rendered":"\n<p>Per recent issuance from FASB, private company, not-for-profit, and employee benefit plan lessees will be able to elect <strong>risk-free rates<\/strong> by class of underlying asset rather than at the entitywide level for lease accounting under a new lease standard.<\/p>\n\n\n\n<p>The change is intended to reduce the cost of implementing FASB&#8217;s lease accounting standard while retaining the benefits of the standard for financial statement users.<\/p>\n\n\n\n<p>Under FASB ASC Topic 842, <em>Leases<\/em>, lessees that are not public business entities are permitted to use a practical expedient that allows them to make an accounting policy election to use a risk-free rate as the discount rate for all leases.<\/p>\n\n\n\n<p>FASB received feedback that some private companies were reluctant to use the risk-free rate election for all leases because a risk-free rate, such as a U.S. Treasury rate, is low compared with their expected average incremental borrowing rate. Therefore, using the risk-free rate election could increase an entity&#8217;s lease liabilities and right-of-use assets.<\/p>\n\n\n\n<p>The amendments in Accounting Standards Update No. 2021-09, <em>Leases (Topic 842): Discount Rates for Lessees That Are Not Public Business Entities<\/em>, permit a risk-free rate election by class of underlying asset, rather than at the entitywide level.<\/p>\n\n\n\n<p>If the rate implicit in the lease is readily determinable for any individual lease, the new standard requires a nonpublic business entity lessee to use that rate rather than a risk-free rate or an incremental borrowing rate. This is true regardless of whether the nonpublic business entity has made the risk-free rate election.<\/p>\n\n\n\n<p>This update is effective for fiscal years beginning after Dec 15, 2021, and interim periods within fiscal years beginning after Dec 15, 2022. Earlier application is permitted.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Per recent issuance from FASB, private company, not-for-profit, and employee benefit plan lessees will be able to elect risk-free rates by class of underlying asset rather than at the entitywide level for lease accounting under a new lease standard. The change is intended to reduce the cost of implementing FASB&#8217;s lease accounting standard while retaining [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"_links":{"self":[{"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/posts\/1748"}],"collection":[{"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1748"}],"version-history":[{"count":1,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/posts\/1748\/revisions"}],"predecessor-version":[{"id":1749,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/posts\/1748\/revisions\/1749"}],"wp:attachment":[{"href":"https:\/\/cmcdllc.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1748"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1748"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1748"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}