What Discount Rate should I choose?

Choosing a discount rate requires a few considerations

A major factor in determining the discount rate used for a lease is the underlying accounting guidance.  To read more about discount rate determination under the accounting standard, select the links below or click on the question mark next to 'discount rate' in Step 2 of Adding a Lease:

FASB/IFRS

GASB

If you're selecting to apply a discount rate to a class of assets, check out the Lease Accounting Policy Documents in the Administration Tab of the software.  You'll find the following templates to read through:

FASB ASC 842 Lease Accounting Policy Template

IFRS 16 Lease Accounting Policy Template

GASB 87 Lease Accounting Policy Template

GASB 96 Lease Accounting Policy Template

Additional Considerations

Once you're aware of the choices you have under the accounting guidance when determining a discount rate, you may need to consider the effect of choosing a lower discount rate over a higher one.

In general, you can think of the effect as such: 

Lower Discount Rate = Higher Liability & ROU Asset

Higher Discount Rate = Lower Liability & ROU Asset

For FASB

The FASB states you'll use the implicit rate when you know it, however, for transition leases, you'll use the following rule of thumb:

For an operating lease, determine the rate at transition since it was never on the Balance Sheet using either the original lease term or the remaining term then apply consistently for all leases.

For a finance lease, you'll use the rate from the beginning of the lease as these were already recorded on the Balance Sheet.