Demystifying incremental borrowing rates: Where valuation meets accounting

Organizations subject to ASC 842 and IFRS 16 often find incremental borrowing rates (IBRs) to be one of the most challenging areas of lease accounting. Despite the importance of the estimate, many companies continue to rely on methodologies that are difficult to defend under audit scrutiny or fail to fully incorporate available market and company-specific borrowing data. Demystifying financial instruments: IBR (PDF - 2.71MB), provides a practical framework for developing supportable IBR estimates and understanding the factors that drive them.

Our guide explains the differences between U.S. GAAP and IFRS requirements, how organizations should evaluate existing debt and creditworthiness, and the role of collateral, seniority and yield curves in determining appropriate rates.

Among the key takeaways, professionals will learn:

• Why observable borrowing costs should serve as the foundation of an IBR analysis whenever possible
• How synthetic credit ratings can be used when debt data is limited
• Why seemingly similar borrowing instruments may require significant adjustments before they can be used as benchmarks
• How to avoid common pitfalls that can delay financial reporting

Finance and accounting professionals responsible for lease accounting will learn how to strengthen estimation methodologies, improve audit readiness and support compliance with evolving reporting requirements.