FASB Issues Update on Lessee Risk-Free Rate Application

November 16, 2021

The Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2021-09 which allows nonpublic companies and certain nonprofit lessees to make an accounting policy election, by class of underlying asset, to use the risk-free rate when calculating the lease liability under Accounting Standards Codification (ASC) 842. Previously, ASC 842 allowed this election at the entity wide level only.

ASU 2021-09 also requires that when the rate implicit in the lease it is readily available, that rate must be used, regardless of the risk-free rate election. ASU 2021-09 is effective for fiscal years beginning after December 15, 2021 or adopted with ASC 842, if not already adopted.