Determining the appropriate discount rate to use under FASB 842 and IFRS 16 is a little bit like being between a rock and a hard place.
According to the new lease accounting standards, which private companies have until the end of the year to implement in order to be in compliance, lessees need to recognize a lease liability on the balance sheet using either the rate implicit in the lease or their incremental borrowing rate (IBR).
At first glance, this choice appears straightforward enough. But actually this aspect of the new guidance is causing more than just a little confusion and frustration. So much so, that the topic is open for discussion in FASB’s next roundtable meeting scheduled for mid-May. (The meeting was originally slated for early April, but with concerns related to the coronavirus crisis, it was pushed back.)
Before getting into the specifics about what makes this discount rate determination so perplexing, private companies reporting under FASB 842 should be aware that the board offers an alternative in the form of a practical expedient.