On November 11, 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-09, Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities, to reduce the cost of implementing FASB Accounting Standards Codification Topic 842, Leases, for lessees that are not public business entities (PBEs), including private companies, 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 the SEC).
The ASU allows lessees that are not PBEs to make the ASC 842 risk-free discount rate accounting policy election by class of underlying asset, rather than at the entity-wide level. An entity that makes this election is required to disclose its election, including the asset class to which it has made the accounting policy election. The ASU also requires a lessee that is not a PBE to use the rate implicit in the lease when it is readily determinable (instead of the risk-free rate), regardless of whether the lessee applies the risk-free rate accounting policy election.
For a lessee that is not a PBE and has not yet adopted ASC 842 as of November 11, 2021, the transition and effective date provisions in ASC 842-10-65-1 apply. For a lessee that is not a PBE and has adopted ASC 842 as of November 11, 2021, (a) the amendments are effective for annual reporting periods beginning after December 15, 2021, and interim reporting periods beginning after December 15, 2022, with early application permitted, and (b) the use of a modified retrospective transition method is required.