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.
DOWNLOAD LEASE DISCOUNT RATE EXPLANATION
Published on February 16, 2022 © Copyright CBIZ, Inc. and MHM. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.
CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ). MHM (Mayer Hoffman McCann P.C.) is an independent CPA firm that provides audit, review and attest services, and works closely with CBIZ, a business consulting, tax and financial services provider. CBIZ and MHM are members of Kreston International Limited, a global network of independent accounting firms. This publication is protected by U.S. and international copyright laws and treaties. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.