Accounting Standards

FASB proposes ASU to improve rate guidance

The proposed amendment would improve rate guidance for lessees that are not public business entities

The Financial Accounting Standards Board (FASB) has issued a proposition, as part of an Accounting Standards Update (ASU) to improve rate guidance for lessees that are not public business entities.

This includes private companies, not-for-profit organizations and employee benefit plans, and is intended to reduce the expected cost of implementing the lease standard.

However, the proposal will also retain the benefits for users of financial statements.

The board is encouraging stakeholders of the changes to review and provide comments on the proposed ASU by 16 July 2021.

In a statement, the FASB said: “To address these concerns, the amendments in the proposed ASU would allow lessees that are not public business entities to make the risk-free rate election by class of underlying asset, rather than at the entity-wide level.

“It also would require that, when the rate implicit in the lease is readily determinable for any individual lease, a lessee would 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.”

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