It bears repeating that the new lease accounting standard under ASC 842 comes with complex accounting requirements and considerations for adoption. Among the challenges to the new standard is ASC 842’s stipulation that lessees record all lease liabilities on the balance sheet based on the present value of the future lease payments. This bit of forecasting requires lessees to determine an appropriate discount rate for each of the entity’s leases in order to reach the future lease payment’s present value. Adding another layer of complexity to the discount rate consideration is the fact that the discount rate is also used in determining the lease classification. Lease classification holds weight on other elements of accounting, as discussed in a previous article here.
Lessees have options when it comes to which method they use to determine their discount rate. It is important to understand what the options are, how they differ, and the relative advantages or disadvantages of each in order to ensure the best method has been selected to address the lease arrangements.
Our resource provides a deep dive into the lease discount rate determination process to guide private companies in their adoption process.
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