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9.12 Effective date and transition for ASU 2021-09
Publication date: 31 Jan 2023
us Leases guide
On November 11, 2021, the FASB published ASU 2021-09, Leases (Topic 842): Lessors—Discount Rate for Lessees That Are Not Public Business Entities, which upon adoption provides nonpublic business entity lessees with a practical expedient to elect, as an accounting policy, to use a risk-free rate as the discount rate by class of underlying asset. ASU 2021-09 requires the use of the rate implicit in the lease when readily determinable regardless of the election to otherwise use a risk-free rate for a class of underlying asset.
Figure LG 9-4 summarizes the effective dates for adopting ASU 2021-09.
Figure LG 9-4
ASU 2021-09 effective dates
ASU 2021-09 effective dates
Type of entity | Effective date |
Nonpublic business entities that have adopted ASC 842 as of November 11, 2021 |
|
Nonpublic business entities that have not yet adopted ASC 842 on or before the issuance of ASU 2021-09 (i.e., November 11, 2021) should adopt ASU 2021-09 at the same time as ASC 842 and use the same transition method used to adopt ASC 842 (i.e., adjust comparative periods with the cumulative effect of transition recognized at the beginning of the earliest period presented, or with the cumulative effect of transition recognized at the beginning of the period of adoption and no adjustment of comparative periods). See LG 9.3 for transition methods available for ASC 842.
Upon adoption of the ASU, nonpublic business entity lessees that have already adopted ASC 842 on or before the issuance of ASU 2021-09 (i.e., November 11, 2021) should:
- Adjust the lease liability using the discount rate calculated based on the remaining lease term of leases that exist at the beginning of the fiscal year of adoption of ASU 2021-09 and recognize the amount of change in the lease liability as an adjustment to the corresponding right-of-use asset.
- If the adjustment would reduce the right-of-use asset to below zero, the lessee should reduce the right-of-use asset to zero and recognize the remaining amount of the adjustment to retained earnings at the beginning of the fiscal year of adoption of the ASU.
- If the adjustment would increase a right-of-use asset that was previously impaired, the lessee should recognize the adjustment to retained earnings at the beginning of the fiscal year of adoption of the ASU.
- Not consider the adoption of the ASU as an event that would cause remeasurement and reallocation of the consideration in the contract (including lease payments) or reassessment of lease term or lessee option to purchase the underlying asset or classification.
- Choose to apply or discontinue using the risk-free rate for any class of underlying asset.
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