Tentative Board Decisions

Tentative Board decisions are provided for those interested in following the Board’s deliberations. All of the reported decisions are tentative and may be changed at future Board meetings.

Wednesday, September 15, 2021 FASB Board Meeting

Leases—discount rate for lessees that are not public business entities. The Board completed its redeliberations on proposed Accounting Standards Update, Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities, and made the following decisions.

Measurement and Disclosure

The Board affirmed the following decisions included in the proposed Update:
  1. Allow a lessee that is not a public business entity to make the risk-free discount rate accounting policy election by class of underlying asset
  2. Require a lessee to disclose its election, including the asset class to which it has made the accounting policy election
  3. Retain a risk-free rate for the discount rate accounting policy election, rather than another specified rate, such as a corporate bond rate or the prime rate
  4. Require a lessee that is not a public business entity 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 election.
Transition and Effective Date

The Board affirmed the following decisions included in the proposed Update:
  1. For a lessee that is not a public business entity that has not adopted Topic 842 as of the issuance of a final Update, the Board decided that the transition and effective date provisions in paragraph 842-10-65-1 should apply.
  2. For a lessee that is not a public business entity that has adopted Topic 842 as of the issuance of a final Update, the Board decided to require the use of a modified retrospective transition method. That transition method would require a lessee to:
    1. Remeasure affected lease liabilities for existing leases at the beginning of the period of adoption as an adjustment to right-of-use assets. However, if a right-of-use asset is reduced to zero or the adjustment would increase a previously impaired right-of-use asset, the offset should be recognized in retained earnings.
    2. Calculate the transition adjustment using the discount rate and remaining lease term as of the adoption date.
    3. Not otherwise remeasure or reclassify leases as a result of transition.
    4. Disclose the fact that the amendments have been adopted and the amount of the transition adjustment.
  3. For a lessee that is not a public business entity that has adopted Topic 842 as of the issuance of a final Update, the Board decided that the amendments should be effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods beginning after December 15, 2022, with early application permitted.
Additional Transition Disclosure

For a lessee that is not a public business entity that has adopted Topic 842 as of the issuance of a final Update, the Board decided to require disclosure of the amount of the transition adjustment to lease liabilities and right-of-use assets as of the beginning of the year of adoption.

Weighted-Average Discount Rate Disclosure

The Board decided to not require a lessee that uses the risk-free rate accounting policy election to separately disclose a weighted-average discount rate for the risk-free rate and a weighted average for all other discount rates (the incremental borrowing rate and rate implicit in the lease). Rather, the Board decided to continue to require a lessee to disclose a single weighted-average discount rate for all leases.

Cost-Benefit Analysis

The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs of the amendments and that the expected benefits of the amendments justify the expected costs.

Next Steps

The Board directed the staff to draft an Accounting Standards Update for vote by written ballot.