Setting incremental borrowing rates without guesswork

Many lease accounting debates stall on the discount rate. Groups without traded debt still need a defensible incremental borrowing rate for each significant portfolio segment—property, vehicles, and plant equipment rarely share the same credit profile or tenor.

We see workable approaches built from bank indication letters, secured lending quotes for similar collateral, and adjustments for lease term and residual value guarantees. The key is consistency: apply the same hierarchy every period and refresh when financing conditions change materially.

Avoid a single company-wide rate for every lease. A five-year Taipei office lease and a two-year forklift fleet do not carry the same borrowing characteristics, and using one rate can distort both the right-of-use asset and the interest expense pattern.

Keep the support file with the engagement papers. When a statutory auditor asks how the rate was derived, you want a dated worksheet—not a recollection of last year's spreadsheet cell.