ASC 842 Incremental Borrowing Rate (IBR)

FASB require all public companies to comply with ASC 842, the lease accounting standard. Additionally, private companies have to comply with this guidance starting 2022. As per this accounting guidance, all non-government companies and certain not-for-profit companies are required to include all the real estate and equipment asset lease on their financial statements, regardless of it being operating or financial lease.

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As part of ASC 842 compliance for private companies, an additional complexity arises to identifying contracts with embedded derivatives. Additionally, every lease of more than one-year lease term must be recorded on the balance sheet as a right-of-use asset and a corresponding lease liability. These lease liabilities are discounted using an appropriate discount rate to estimate present value of all the future lease liabilities. Lessees are advised to use an incremental borrowing rate (IBR) as this discount rate.

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At EquitAdvisors we can support you in determining your lease liability in a cost-effective manner, without undermining the quality expectation and regulatory requirement.