# ASC 815-10-15: Derivatives and Hedging — Overall — 15 Scope and Scope Exceptions Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/10/#15-scope-and-scope-exceptions) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1072165722282a3f13108dec7150d2f76cccfa2f8d3774b3d2d1e13dd7f5eac8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-10-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/815/10/#15-scope-and-scope-exceptions) SEC content: no #### Entities ##### [815-10-15-1](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:3e374449f86d1e1e5fc43c493aff3806da9cbbfdf2e95236518b1d29fddb58cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic applies to all entities. Some entities, such as not-for-profit entities (NFPs) and defined benefit pension plans, do not report earnings as a separate caption in a statement of financial performance. The application of this Subtopic to those entities is set forth in paragraphs [815-10-35-3](https://asc.understandingaccounting.org/asc/815/10/#815-10-35-3), [815-20-15-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-15-1), [815-25-35-19](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-19), and [815-30-15-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-15-3). #### Instruments ##### [815-10-15-2](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:dd897fc733f6e246b359e1c20c78edc935e012b540e81953391055b5b0653c20 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The scope of this Subtopic relates primarily to whether a contract meets the definition of a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") (see paragraph [815-10-15-83](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83)). However, as discussed in this Subsection, some contracts that meet the definition of derivative instrument are not within the scope of this Subtopic, while other contracts that do not meet the definition of derivative instrument are within the scope of this Subtopic. Some of the disclosure requirements in Section 815-10-50 apply to nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs [815-20-25-58](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) and [815-20-25-66](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-66). ##### [815-10-15-3](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:3703e7affd69d1fb0c048e2779318a274cc8aed30284469c0168a49f63e655bc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If events occur after the inception or acquisition of a contract that cause the contract to meet the definition of a derivative instrument, then that contract shall be accounted for at that later date as a derivative instrument under this Subtopic unless one of the scope exceptions in this Subsection applies. ##### [815-10-15-4](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:4959ee477573ccc224a089bfd61e5778b48a1070657d1675095910b7d7a730ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a contract meets the definition of both a derivative instrument and a [firm commitment](https://asc.understandingaccounting.org/glossary/f/#firm-commitment "An agreement with an unrelated party, binding on both parties and usually legally enforceable, with the following characteristics:The agreement specifies all significant terms, including the quantity to be exchanged, the fixed price, and the timing of the transaction. The fixed price may be expressed as a specified amount of an entity's functional currency or of a foreign currency. It may also be expressed as a specified interest rate or specified effective yield. The binding provisions of an agreement are regarded to include those legal rights and obligations codified in the laws to which such an agreement is subject. A price that varies with the market price of the item that is the subject of the firm commitment cannot qualify as a fixed price. For example, a price that is specified in terms of ounces of gold would not be a fixed price if the market price of the item to be purchased or sold under the firm commitment varied with the price of gold. The agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable. In the legal jurisdiction that governs the agreement, the existence of statutory rights to pursue remedies for default equivalent to the damages suffered by the nondefaulting party, in and of itself, represents a sufficiently large disincentive for nonperformance to make performance probable for purposes of applying the definition of a firm commitment.") under this Subtopic, then an entity shall account for the contract as a derivative instrument unless one of the scope exceptions in this Subsection applies. ##### [815-10-15-4A](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-4A) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:e704c8f2e7b93f3bb5825b0c0d1e0e91afc2fb5f3e7c7cc530dbfae64d2d96c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section addresses the following unit of accounting questions on scope: 1. a Viewing a contract as freestanding or embedded. Whether a feature should be viewed as freestanding or embedded in determining the scope application of this Subtopic and Subtopic 815-15 is addressed beginning in paragraph [815-10-15-5](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-5). 2. b Viewing two or more contracts as a unit in applying the scope of this Subtopic. Whether two or more legally separate transactions should be viewed as a unit in determining the scope application of this Subtopic is addressed beginning in paragraph [815-10-15-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-8). ##### [815-10-15-4B](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-4B) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:a74d8fc79fc59da694fadaa4d0ba840adc81d10c9d18a3d4c337a459e4b4fc28 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-10-25-5A](https://asc.understandingaccounting.org/asc/815/10/#815-10-25-5A) explains that Section 815-10-25 addresses the following unit of accounting questions with respect to recognition: 1. a Viewing two freestanding derivative instruments as a unit. Whether two or more contracts that are derivative instruments within the scope application of this Subtopic should be viewed as a unit for recognition and other purposes—including for hedge accounting purposes—is addressed beginning in paragraph [815-10-25-6](https://asc.understandingaccounting.org/asc/815/10/#815-10-25-6). 2. b Viewing combinations of options as separate options or as a single forward contract. Whether combinations of options that individually are within the scope application of this Subtopic or Subtopic 815-15 should be viewed as separate options or as a single forward is addressed beginning in paragraph [815-10-25-7](https://asc.understandingaccounting.org/asc/815/10/#815-10-25-7). ##### [815-10-15-5](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:c51c52e5f580d4f73c3317dd51e3dad49c66c9043a5e6e756a539f9a5861fb6e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The notion of an [embedded derivative](https://asc.understandingaccounting.org/glossary/e/#embedded-derivative "Implicit or explicit terms that affect some or all of the cash flows or the value of other exchanges required by a contract in a manner similar to a derivative instrument."), as discussed in paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1), does not contemplate features that may be sold or traded separately from the contract in which those rights and obligations are embedded. Assuming they meet this Subtopic's definition of a derivative instrument, such features shall be considered attached [freestanding](https://asc.understandingaccounting.org/glossary/f/#freestanding-contract "A freestanding contract is entered into either: Separate and apart from any of the entity's other financial instruments or equity transactions In conjunction with some other transaction and is legally detachable and separately exercisable.") derivative instruments rather than embedded derivatives by both the writer and the current holder. ##### [815-10-15-6](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:233ccce8b14ca7eb6400acb900b29ce29abc655c53bebb76e2fe8fb3f9f75ad6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A put or call option that is added or attached to a debt instrument by a third party contemporaneously with or after the issuance of the debt instrument shall be separately accounted for as a derivative instrument under this Subtopic by the investor (that is, by the creditor). An option that is added or attached to an existing debt instrument by another party results in the investor having different counterparties for the option and the debt instrument and, thus, the option shall not be considered an embedded derivative. Paragraph [815-15-25-2](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-2) states that notion of an embedded derivative in a hybrid instrument refers to provisions incorporated into a single contract, and not to provisions in separate contracts between different counterparties. ##### [815-10-15-7](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:e883bd311264b504f2865f4263868191af46e16fa6db3f17c591682c2c7090eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a debt instrument includes in its terms at issuance an option feature that is explicitly transferable independent of the debt instrument and thus is potentially exercisable by a party other than either the issuer of the debt instrument (the debtor) or the holder of the debt instrument (the investor), that option shall be considered under this Subtopic as an attached freestanding derivative instrument, rather than an embedded derivative, by both the writer and the holder of the option. ##### [815-10-15-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:839e45670bd452c97e7f14d3997ade6b695c8db43f9c306664ef84a1cf7bf46b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In some circumstances, an entity could enter into two or more legally separate transactions that, if combined, would generate a result that is economically similar to entering into a single [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") that would be accounted for as a derivative instrument under this Subtopic. For guidance on circumstances in which two or more contracts that have been determined to be derivative instruments within the scope of this Subtopic must be viewed as a unit, see the guidance beginning in paragraph [815-10-25-6](https://asc.understandingaccounting.org/asc/815/10/#815-10-25-6). For guidance on circumstances in which two or more contracts that have been determined to be options within the scope of this Subtopic must be viewed in combination, see the guidance beginning in paragraph [815-10-25-7](https://asc.understandingaccounting.org/asc/815/10/#815-10-25-7). ##### [815-10-15-9](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:744e2c94ff98ccde33da17abd160c67fa605d0c4eefb822baeac14dd642fcaad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If two or more separate transactions may have been entered into in an attempt to circumvent the provisions of this Subtopic, the following indicators shall be considered in the aggregate and, if present, shall cause the transactions to be viewed as a unit and not separately: 1. a The transactions were entered into contemporaneously and in contemplation of one another. 2. b The transactions were executed with the same counterparty (or structured through an intermediary). 3. c The transactions relate to the same risk. 4. d There is no apparent economic need or substantive business purpose for structuring the transactions separately that could not also have been accomplished in a single transaction. ##### [815-10-15-10](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-10) Pending content: yes Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1402e6f3811ed9bd790c5a936c95959bb7663fa6db75f474ced7b910a16a6836 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the General Subsections of this Subtopic applies to all derivative instruments, as that term is defined in paragraph [815-10-15-83](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83), unless explicitly excluded by this Subsection (see paragraphs [815-10-15-13 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) ). The General Subsections of this Subtopic also identify incremental guidance that applies specifically to [forward commitment dollar rolls](https://asc.understandingaccounting.org/glossary/f/#forward-commitment-dollar-roll "See Government National Mortgage Association Rolls."). Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [815-10-65-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-8)
Editor's Note: The content of paragraph 815-10-15-10 will change upon transition, together with a change in the heading noted below.
•> Instruments within Scope
The guidance in the General Subsections of this Subtopic applies to all derivative instruments, as that term is defined in paragraph [815-10-15-83](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83), unless explicitly excluded by this Subsection (see paragraphs [815-10-15-13 through 15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) and [815-10-15-62 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) ). The General Subsections of this Subtopic also identify incremental guidance that applies specifically to [forward commitment dollar rolls](https://asc.understandingaccounting.org/glossary/f/#forward-commitment-dollar-roll "See Government National Mortgage Association Rolls."). ##### [815-10-15-11](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:8379ee2c2b1b9e3413e82c5975d80d3e463027b13d32a582f70744ba5bbba4e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The holder of an interest in securitized financial assets (other than those identified in paragraphs [815-10-15-72 through 15-73](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-72) ) shall determine whether the interest is a freestanding derivative instrument or contains an embedded derivative that under Section 815-15-25 would be required to be separated from the host contract and accounted for separately. ##### [815-10-15-12](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:4bbc8abdd4b1322a63d5485d4dc0d4deaf070c56da8e149bc81fed64838bce92 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A forward commitment dollar roll that does not meet the definition of a derivative instrument is within the scope of the guidance specified for such contracts in this Subtopic (see paragraphs [815-10-25-15](https://asc.understandingaccounting.org/asc/815/10/#815-10-25-15), [815-10-30-4](https://asc.understandingaccounting.org/asc/815/10/#815-10-30-4), and [815-10-35-4](https://asc.understandingaccounting.org/asc/815/10/#815-10-35-4)). ##### [815-10-15-13](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:bae8bff781c9ea3ec4546207fab143ffae53fb267b1a5d2f67aa182634d8a85a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Notwithstanding the conditions in paragraphs [815-10-15-83 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) , the following contracts are not subject to the requirements of this Subtopic if specified criteria are met: 1. a Regular-way security trades 2. b Normal purchases and normal sales 3. c Certain insurance contracts and [market risk benefits](https://asc.understandingaccounting.org/glossary/m/#market-risk-benefit "A contract or contract feature in a long-duration contract issued by an insurance entity that both protects the contract holder from other-than-nominal capital market risk and exposes the insurance entity to other-than-nominal capital market risk.") 4. d Certain financial guarantee contracts 5. e Certain contracts that are not traded on an exchange 6. f Derivative instruments that impede sales accounting 7. g Investments in life insurance 8. h Certain investment contracts 9. i Certain loan commitments 10. j Certain interest-only strips and principal-only strips 11. k Certain contracts involving an entity's own equity 12. l Leases 13. m Residual value guarantees 14. n [Registration payment arrangements](https://asc.understandingaccounting.org/glossary/r/#registration-payment-arrangement "An arrangement with both of the following characteristics: It specifies that the issuer will endeavor to do either of the following: File a registration statement for the resale of specified financial instruments and/or for the resale of equity shares that are issuable upon exercise or conversion of specified financial instruments and for that registration statement to be declared effective by the U.S. Securities and Exchange Commission (SEC) (or other applicable securities regulator if the registration statement will be filed in a foreign jurisdiction) within a specified grace period Maintain the effectiveness of the registration statement for a specified period of time (or in perpetuity). It requires the issuer to transfer consideration to the counterparty if the registration statement for the resale of the financial instrument or instruments subject to the arrangement is not declared effective or if effectiveness of the registration statement is not maintained. That consideration may be payable in a lump sum or it may be payable periodically, and the form of the consideration may vary. For example, the consideration may be in the form of cash, equity instruments, or adjustments to the terms of the financial instrument or instruments that are subject to the registration payment arrangement (such as an increased interest rate on a debt instrument).") 15. o Certain fixed-odds wagering contracts. ##### [815-10-15-14](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1de54ac5911e793f7fe53113e195af991ca89fb2120e3ba646340104d7f7ed62 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are the criteria that must be met for each scope exception. ##### [815-10-15-15](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1eef08e4544b4227b112296bb31f1b16aa032b21f7c58b66d9ca206b61532b7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Regular-way security trades](https://asc.understandingaccounting.org/glossary/r/#regular-way-security-trades "Regular-way security trades are contracts that provide for delivery of a security within the period of time (after the trade date) generally established by regulations or conventions in the marketplace or exchange in which the transaction is being executed.") are defined as contracts that provide for delivery of a security within the period of time (after the trade date) generally established by regulations or conventions in the marketplace or exchange in which the transaction is being executed. For example, a contract to purchase or sell a publicly traded equity security in the United States customarily requires settlement within three business days. If a contract for purchase of that type of security requires settlement in three business days, the regular-way security trades scope exception applies, but if the contract requires settlement in five days, the regular-way security trades scope exception does not apply unless the reporting entity is required to account for the contract on a trade-date basis. ##### [815-10-15-16](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:bd04b290f1a2c441cf1f43fdcc3026d0c305ab14d8c9e136d2ebffd231eb5536 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Except as provided in (a) in the following paragraph, a contract for an existing security does not qualify for the regular-way security trades scope exception if either of the following is true: 1. a It requires or permits net settlement (as discussed in paragraphs [815-10-15-100 through 15-109](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) ). 2. b A market mechanism exists to facilitate net settlement of that contract (as discussed in paragraphs [815-10-15-110 through 15-118](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110) ). ##### [815-10-15-17](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:4a2d50378b665fd683af1570a2456719abcde0bdbf643ac8880302c2cc652b08 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The scope exception for regular-way security trades applies only to a contract that requires delivery of securities that are [readily convertible to cash](https://asc.understandingaccounting.org/glossary/r/#readily-convertible-to-cash "Assets that are readily convertible to cash have both of the following: Interchangeable (fungible) units Quoted prices available in an active market that can rapidly absorb the quantity held by the entity without significantly affecting the price. (Based on paragraph 83(a) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9Assets that are readily convertible to cash have both of the following: Interchangeable (fungible) units Quoted prices available in an active market that can rapidly absorb the quantity held by the entity without significantly affecting the price.") except that the scope exception also shall or may apply in any of the following circumstances: 1. a If an entity is required, or has a continuing policy, to account for a contract to purchase or sell an existing security on a trade-date basis, rather than a settlement-date basis, and thus recognizes the acquisition (or disposition) of the security at the inception of the contract, then the entity shall apply the regular-way security trades scope exception to that contract. 2. b If an entity is required, or has a continuing policy, to account for a contract for the purchase or sale of when-issued securities or other securities that do not yet exist on a trade-date basis, rather than a settlement-date basis, and thus recognizes the acquisition or disposition of the securities at the inception of the contract, that entity shall apply the regular-way security trades scope exception to those contracts. 3. c Contracts for the purchase or sale of when-issued securities or other securities that do not yet exist, except for those contracts accounted for on a trade-date basis, are excluded from the requirements of this Subtopic as a regular-way security trade only if all of the following are true: 1. 1  There is no other way to purchase or sell that security. 2. 2 Delivery of that security and settlement will occur within the shortest period possible for that type of security. 3. 3 It is probable at inception and throughout the term of the individual contract that the contract will not settle net and will result in physical delivery of a security when it is issued. (The entity shall document the basis for concluding that it is probable that the contract will not settle net and will result in physical delivery.) Example 9 (see paragraph [815-10-55-118](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-118)) illustrates the application of item (c) in this paragraph. ##### [815-10-15-18](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:ee4495f881dfa00902e9ed8cfbcf25a162827245aea753707772be81f88008c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Note that contracts that require delivery of securities that are not readily convertible to cash (and thus do not permit net settlement) are not subject to the requirements of this Subtopic unless there is a market mechanism outside the contract to facilitate net settlement (as described in paragraph [815-10-15-110](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110)). ##### [815-10-15-19](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:24b449a611d9c6ecb162b6471fb62430c1a471548719c5e4c79d26462a8deb8c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract for the purchase or sale of when-issued securities or other securities that do not yet exist is eligible to qualify for the regular-way security trades scope exception (as discussed in paragraph [815-10-15-17](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-17)) even though either of the following is true: 1. a That contract permits net settlement (as discussed in paragraphs [815-10-15-100 through 15-109](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) ). 2. b A market mechanism exists to facilitate net settlement of that contract (as discussed in paragraphs [815-10-15-110 through 15-118](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110) ). See Example 9 (paragraph [815-10-55-118](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-118)). ##### [815-10-15-20](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:a55720521b2ab8fae268c904892d8b1f36e0eb7e4ff1de7069df2f0c0c67d917 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Net settlement (as described in paragraphs [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) and [815-10-15-110](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110)) of contracts in a group of contracts similarly designated as regular-way security trades would call into question the continued application of the scope exception to such contracts. ##### [815-10-15-21](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:7a0d040d384dd7e38cdc52b752362f54894c4677187c0816101082be354af708 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic does not change whether an entity recognizes regular-way security trades on the trade date or the settlement date. ##### [815-10-15-22](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:3dd21bf1b49b64ab254e2fd91661e1a335ede93eda850243acd4210f70e80e8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a [financial instrument](https://asc.understandingaccounting.org/glossary/f/#financial-instrument "Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. All contractual rights (contractual obligations) that are financial instruments meet the definition of asset (liability) set forth in FASB Concepts Statement No. 6, Elements of Financial Statements, although some may not be recognized as assets (liabilities) in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity. (P) December 16, 2024; (N) December 16, 2025105-10-65-9Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. Some contractual rights (contractual obligations) that are financial instruments may not be recognized in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity.") or derivative instrument that will be delivered in quantities expected to be used or sold by the reporting entity over a reasonable period in the normal course of business. ##### [815-10-15-23](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:91e320b4595848ad4207fe679d468ff66ccf5ceda0e05f02ed8d2ff1df247263 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The assessment of whether a contract qualifies for the normal purchases and normal sales scope exception (including whether the [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") of a price adjustment within the contract is not clearly and closely related to the asset being sold or purchased) shall be performed only at the inception of the contract. ##### [815-10-15-24](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:0fe1a8d4f1bda4e3b0a87e1a84dab8e7860da63c581397ab217151f4f29e6328 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The normal purchases and normal sales scope exception sometimes will result in different parties to a contract reaching different conclusions about whether the contract is required to be accounted for as a derivative instrument. For example, the contract may be for ordinary sales by one party but not for ordinary purchases by the counterparty. ##### [815-10-15-25](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:c24aa299a0246e2f367fbe5f472203294c79b8d18d3027400a414e5f276d9387 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Following are discussions of four important elements needed to qualify for the normal purchases and normal sales scope exception: 1. a Normal terms (including normal quantity) 2. b Clearly and closely related underlying 3. c Probable physical settlement 4. d Documentation. ##### [815-10-15-26](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:87409c74c5a604809d908ec1f2011c585f8b3f0d83f858131ec958444f58ee13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Also discussed is guidance that should be considered in determining whether each of the following specific types of contracts qualifies for the normal purchases and normal sales scope exception: 1. a Freestanding option contracts 2. b Forward (non-option-based) contracts 3. c Forward contracts that contain optionality features 4. d Power purchase or sale agreements. ##### [815-10-15-27](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:66d11e12fe3564e05d1a4a19a1782b8914c25762f383e47af35d4f8c93db379a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To qualify for the scope exception, a contract's terms must be consistent with the terms of an entity's normal purchases or normal sales, that is, the quantity purchased or sold must be reasonable in relation to the entity's business needs. Determining whether or not the terms are consistent requires judgment. ##### [815-10-15-28](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:eb3d72ac6e7332ea6568f7ce8760a0f2b594c70cadf8fdb54fda6476121e491c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In making those judgments, an entity should consider all relevant factors, including all of the following: 1. a The quantities provided under the contract and the entity's need for the related assets 2. b The locations to which delivery of the items will be made 3. c The period of time between entering into the contract and delivery 4. d The entity's prior practices with regard to such contracts. ##### [815-10-15-29](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:5189dd3c472b0b2dd37743c87ee58388e0057d58d63a54c0421ca9a67ae52d7b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Further, each of the following types of evidence should help in identifying contracts that qualify as normal purchases or normal sales: 1. a Past trends 2. b Expected future demand 3. c Other contracts for delivery of similar items 4. d An entity's and industry's customs for acquiring and storing the related commodities 5. e An entity's operating locations. For guidance on normal purchases and normal sales as hedged items, see paragraph [815-20-25-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-7). ##### [815-10-15-30](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:aa9c7b3a4ebf0591a8562d4b99722ee7318f0b56afa2bf0a0ec9a771a3aeca1f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Contracts that have a price based on an underlying that is not clearly and closely related to the asset being sold or purchased (such as a price in a contract for the sale of a grain commodity based in part on changes in the Standard and Poor's index) or that are denominated in a foreign currency that meets none of the criteria in paragraph [815-15-15-10(b)](https://asc.understandingaccounting.org/asc/815/15/#815-15-15-10) shall not be considered normal purchases and normal sales. ##### [815-10-15-31](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b10a8b7c41c02b0a338b66a6b0e2299d1527fa8719ce5616028e1a50548f7f26 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The phrase _not clearly and closely related_ in the preceding paragraph with respect to the normal purchases and normal sales scope exception is used to convey a different meaning than in paragraphs [815-15-25-1(a)](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1) and [815-15-25-16 through 25-51](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-16) with respect to the relationship between an embedded derivative and the host contract in which it is embedded. The guidance in this discussion of normal purchases and normal sales does not affect the use of the phrase _not clearly and closely related_ in paragraphs other than the preceding paragraph. For purposes of determining whether a contract qualifies for the normal purchases and normal sales scope exception, the application of the phrase _not clearly and closely related_ to the asset being sold or purchased shall involve an analysis of both qualitative and quantitative considerations. The analysis is specific to the contract being considered for the normal purchases and normal sales scope exception and may include identification of the components of the asset being sold or purchased. ##### [815-10-15-32](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:e82218740bd2749abc1b11e33e8b8027afc42e598e6de850a9f2f524a014d72b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The underlying in a price adjustment incorporated into a contract that otherwise satisfies the requirements for the normal purchases and normal sales scope exception shall be considered to be not clearly and closely related to the asset being sold or purchased in any of the following circumstances: 1. a The underlying is extraneous (that is, irrelevant and not pertinent) to both the changes in the cost and the changes in the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of the asset being sold or purchased, including being extraneous to an ingredient or direct factor in the customary or specific production of that asset. 2. b If the underlying is not extraneous as discussed in (a), the magnitude and direction of the impact of the price adjustment are not consistent with the relevancy of the underlying. That is, the magnitude of the price adjustment based on the underlying is significantly disproportionate to the impact of the underlying on the fair value or cost of the asset being purchased or sold (or of an ingredient or direct factor, as appropriate). 3. c The underlying is a currency exchange rate involving a foreign currency that meets none of the criteria in paragraph [815-15-15-10(b)](https://asc.understandingaccounting.org/asc/815/15/#815-15-15-10) for that reporting entity. ##### [815-10-15-33](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:dab4ff8567ee3186a7294b73aeeefb52e8212f5fb0374ecc3020514d71243c69 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, in the case in which the price adjustment focuses on the changes in the fair value of the asset being purchased or sold, if the terms of the price adjustment are expected, at the inception of the contract, to affect the purchase or sales price in a manner comparable to the outcome that would be obtained if, at each delivery date, the parties were to reprice the contract amount under the then-existing conditions for the asset being delivered on that date, the price adjustment's underlying is considered to be clearly and closely related to the asset being sold or purchased and the price adjustment would not be an impediment to the contract qualifying for the normal purchases and normal sales scope exception. ##### [815-10-15-34](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:0e85b93a42fb384ec8636cdc98ce58a30a9e8aae5ff953441ec8c211d3ee1ab3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the underlying in a price adjustment incorporated into a purchase or sales contract is not an impediment to qualifying for the normal purchases and normal sales scope exception because it is considered to be clearly and closely related to the asset being sold or purchased, the contract must meet the other requirements in this Subsection to qualify for the normal purchases and normal sales scope exception. ##### [815-10-15-35](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:fffc3944317f34107e5a70138d03d609e0f8dcb5794e76d9294b33507f6576e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a contract that meets the net settlement provisions of paragraphs [815-10-15-100 through 15-109](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) and the market mechanism provisions of paragraphs [815-10-15-110 through 15-118](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110) to qualify for the normal purchases and normal sales scope exception, it must be probable at inception and throughout the term of the individual contract that the contract will not settle net and will result in physical delivery. ##### [815-10-15-36](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:34e2ec6574ae28d94d2b8d0acca0c93d0a17489ef23da98db42c7e0ce5d4ea68 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The normal purchases and normal sales scope exception only relates to a contract that results in gross delivery of the commodity under that contract. The normal purchases and normal sales scope exception shall not be applied to a contract that requires cash settlements of gains or losses or otherwise settle gains or losses periodically because those settlements are net settlements. Paragraph [815-20-25-22](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22) explains how an entity may designate such a contract as a hedged item in an [all-in-one hedge](https://asc.understandingaccounting.org/glossary/a/#all-in-one-hedge "In an all-in-one hedge, a derivative instrument that will involve gross settlement is designated as the hedging instrument in a cash flow hedge of the variability of the consideration to be paid or received in the forecasted transaction that will occur upon gross settlement of the derivative instrument itself.") if all related criteria are met. ##### [815-10-15-36A](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-36A) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:40612c2675ace2540834d8a4f24021d3ea0fe7aeaff137b6b91aa3f5469df144 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Certain contracts for the purchase or sale of electricity on a forward basis that necessitate transmission through, or delivery to a location within, an electricity grid operated by an independent system operator result in one of the contracting parties incurring charges (or credits) for the transmission of that electricity based in part on locational marginal pricing differences payable to (or receivable from) the independent system operator. For example, this is the case when the delivery location under the contract (for example, a hub location) is not the same location as the point of ultimate consumption of the electricity or the point from which the electricity exits the electricity grid for transmission to a customer load zone. Delivery to the point of ultimate consumption or the exit point is facilitated by the independent system operator of the grid. The purchase or sale contract and the transmission services do not constitute a series of sequential contracts intended to accomplish the ultimate acquisition or sale of a commodity as discussed in paragraph [815-10-15-41](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-41), and the use of locational marginal pricing to determine the transmission charge (or credit) does not constitute net settlement, even in situations in which legal title to the associated electricity is conveyed to the independent system operator during transmission. ##### [815-10-15-37](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b475bee05f8aef6348440804aff270704aae743a86bbcbe68701a953341615fd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For contracts that qualify for the normal purchases and normal sales exception under any provision of paragraphs [815-10-15-22 through 15-51](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-22) , the entity shall document the designation of the contract as a normal purchase or normal sale, including either of the following: 1. a For contracts that qualify for the normal purchases and normal sales exception under paragraph [815-10-15-41](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-41) or [815-10-15-42 through 15-44](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-42) , the entity shall document the basis for concluding that it is probable that the contract will not settle net and will result in physical delivery. 2. b For contracts that qualify for the normal purchases and normal sales exception under paragraphs [815-10-15-45 through 15-51](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-45) , the entity shall document the basis for concluding that the agreement meets the criteria in that paragraph, including the basis for concluding that the agreement is a [capacity contract](https://asc.understandingaccounting.org/glossary/c/#capacity-contract "An agreement by an owner of capacity to sell the right to that capacity to another party so that it can satisfy its obligations. For example, in the electric industry, capacity (sometimes referred to as installed capacity) is the capability to deliver electric power to the electric transmission system of an operating control area."). ##### [815-10-15-38](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:7c335c1c1adf611d313ded70e82b458ebf11020d346df47f2f37d8bacc740c31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The documentation requirements can be applied either to groups of similarly designated contracts or to each individual contract. Failure to comply with the documentation requirements precludes application of the normal purchases and normal sales scope exception to contracts that would otherwise qualify for that scope exception. ##### [815-10-15-39](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b94125ab0d88ea6489d5b8790b65083bb296612a96112904b0b8a0c90cc32170 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The normal purchases and normal sales scope exception could effectively be interpreted as an election in all cases. However, once an entity documents compliance with the requirements of paragraphs [815-10-15-22 through 15-51](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-22) , which could be done at the inception of the contract or at a later date, the entity is not permitted at a later date to change its election and treat the contract as a derivative instrument. ##### [815-10-15-40](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:2639821f93a602163cb5af8361fef42384c2a6eafd173e6df094e10bf6f319ec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Option contracts that would require delivery of the related asset at an established price under the contract only if exercised are not eligible to qualify for the normal purchases and normal sales scope exception, except as indicated in paragraphs [815-10-15-45 through 15-51](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-45) . ##### [815-10-15-41](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:877faa6da0baa9cd8ed6e187eae1eb0a59f628c196b4e44fdb9620eefc2ce1c2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Forward contracts are eligible to qualify for the normal purchases and normal sales scope exception. However, forward contracts that contain net settlement provisions as described in either paragraphs [815-10-15-100 through 15-109](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) or [815-10-15-110 through 15-118](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110) are not eligible for the normal purchases and normal sales scope exception unless it is probable at inception and throughout the term of the individual contract that the contract will not settle net and will result in physical delivery. Contracts that are subject to unplanned netting (referred to as a book-out in the electric utility industry) do not qualify for this scope exception except as specified in paragraph [815-10-15-46](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-46). Net settlement (as described in paragraphs [815-10-15-100 through 15-109](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) and [815-10-15-110 through 15-118](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110) ) of contracts in a group of contracts similarly designated as normal purchases and normal sales would call into question the classification of all such contracts as normal purchases or normal sales. Contracts that require cash settlements of gains or losses or are otherwise settled net on a periodic basis, including individual contracts that are part of a series of sequential contracts intended to accomplish ultimate acquisition or sale of a commodity, do not qualify for the normal purchases and normal sales scope exception. ##### [815-10-15-42](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:7d26a51d111643d3cfddf048765bf53219b4de202cedeab42b98941a992cccda Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Forward contracts that contain optionality features that do not modify the quantity of the asset to be delivered under the contract are eligible to qualify for the normal purchases and normal sales scope exception. Except for power purchase or sales agreements addressed in paragraphs [815-10-15-45 through 15-51](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-45) , if an option component permits modification of the quantity of the assets to be delivered, the contract is not eligible for the normal purchases and normal sales scope exception, unless the option component permits the holder only to purchase or sell additional quantities at the market price at the date of delivery. For forward contracts that contain optionality features to qualify for the normal purchases and normal sales scope exception, the criteria discussed in the preceding paragraph must be met. ##### [815-10-15-43](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:f7267cac41a7f03e6b6afb8dbbb8ae3e63476d3fccc1cf29ec53ce29d8e1fd31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the optionality feature in the forward contract can modify the quantity of the asset to be delivered under the contract and that option feature has expired or has been completely exercised (even if delivery has not yet occurred), there is no longer any uncertainty as to the quantity to be delivered under the forward contract. Accordingly, following such expiration or exercise, the forward contract would be eligible for designation as a normal purchase or normal sale, provided that the other applicable conditions in this Subsection are met. Example 10 (see paragraph [815-10-55-121](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-121)) illustrates this guidance. ##### [815-10-15-44](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:a89eade9550f67aced70bd50781ddffa2044ae47740c48116e40386bd409629f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The inclusion of a purchased option that would, if exercised, require delivery of the related asset at an established price under the contract within a single contract that meets the definition of a derivative instrument disqualifies the entire contract from being eligible to qualify for the normal purchases and normal sales scope exception in this Subsection except as provided in the following paragraph through paragraph [815-10-15-51](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-51) with respect to certain power purchase or sales agreements. ##### [815-10-15-45](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:35a207d88f14a78ff15940d3952fdf4792451aeaa017af5ec5552c7ad376c97c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Notwithstanding the criteria in paragraphs [815-10-15-41 through 15-44](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-41) , a power purchase or sales agreement (whether a forward contract, option contract, or a combination of both) that is a capacity contract for the purchase or sale of electricity also qualifies for the normal purchases and normal sales scope exception if all of the following applicable criteria are met: 1. a For both parties to the contract, both of the following criteria are met: 1. 1 The terms of the contract require physical delivery of electricity. That is, the contract does not permit net settlement, as described in paragraphs [815-10-15-100 through 15-109](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) . For an option contract, physical delivery is required if the option contract is exercised. Certain contracts for the purchase or sale of electricity on a forward basis that necessitate transmission through, or delivery to a location within, an electricity grid operated by an independent system operator result in one of the contracting parties incurring charges (or credits) for the transmission of that electricity based in part on locational marginal pricing differences payable to (or receivable from) the independent system operator. For example, this is the case when the delivery location under the contract (for example, a hub location) is not the same location as the point of ultimate consumption of the electricity or the point from which the electricity exits the electricity grid for transmission to a customer load zone. Delivery to the point of ultimate consumption or the exit point is facilitated by the independent system operator of the grid. The use of locational marginal pricing to determine the transmission charge (or credit) does not constitute net settlement, even in situations in which legal title to the associated electricity is conveyed to the independent system operator during transmission. 2. 2 The power purchase or sales agreement is a capacity contract. Differentiating between a capacity contract and a traditional option contract (that is, a financial option on electricity) is a matter of judgment that depends on the facts and circumstances. For power purchase or sale agreements that contain option features, the characteristics of an option contract that is a capacity contract and a traditional option contract, which are set forth in paragraph [815-10-55-31](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-31) shall be considered in that evaluation; however, other characteristics not listed in that paragraph may also be relevant to that evaluation. 2. b For the seller of electricity: The electricity that would be deliverable under the contract involves quantities that are expected to be sold by the reporting entity in the normal course of business. 3. c For the buyer of electricity, all of the following criteria are met: 1. 1 The electricity that would be deliverable under the contract involves quantities that are expected to be used or sold by the reporting entity in the normal course of business. 2. 2 The buyer of the electricity under the power purchase or sales agreement is an entity that meets both of the following criteria: 1. i The entity is engaged in selling electricity to retail or wholesale customers. 2. ii The entity is statutorily or otherwise contractually obligated to maintain sufficient capacity to meet electricity needs of its customer base. 3. 3 The contracts are entered into to meet the buyer's obligation to maintain a sufficient capacity, including a reasonable reserve margin established by or based on a regulatory commission, local standards, regional reliability councils, or regional transmission organizations. ##### [815-10-15-46](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:eefcba5e6ad3e7bd9e2945ee8800ccfe18ca4a348c2dbaed664002cb17aca779 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Power purchase or sales agreements that meet only the applicable criteria in paragraph [815-10-15-45](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-45) qualify for the normal purchases and normal sales scope exception even if they are subject to being booked out or are scheduled to be booked out. ##### [815-10-15-47](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:020efe139045458197594f5ebca93d7d1c43b3f01dd5056d276153194a288e81 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Forward contracts for the purchase or sale of electricity that do not meet those applicable criteria as well as other forward contracts are nevertheless eligible to qualify for the normal purchases and normal sales scope exception by meeting the criteria in this Subsection (other than paragraph [815-10-15-45](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-45)), unless those contracts are subject to unplanned netting (that is, subject to possibly being booked out). ##### [815-10-15-48](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:34edfe16d92c57cdc31e5e0c2e028f670c7325445a302b2f2349d89da32f6c1e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because electricity cannot be readily stored in significant quantities and the entity engaged in selling electricity is obligated to maintain sufficient capacity to meet the electricity needs of its customer base, an option contract for the purchase of electricity that meets the criteria in paragraph [815-10-15-45](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-45) qualifies for the normal purchases and normal sales scope exception in that paragraph. ##### [815-10-15-49](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:43cd073592ee89971c61ad650d87ebd53b33a93fa80627bc4b78028fb5fc662b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance does not affect the accounting for requirements contracts that would not be required to be accounted for under the guidance in this Subtopic pursuant to paragraphs [815-10-55-5 through 55-7](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-5) . ##### [815-10-15-50](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:81ab0c012b93184a7fb1cdde2fdab6672617ebbc0dd54231ee4cda1509063398 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Contracts that qualify for the normal purchases and normal sales scope exception based on this guidance do not require compliance with any additional guidance in paragraphs [815-10-15-22 through 15-44](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-22) . However, contracts that have a price based on an underlying that is not clearly and closely related to the electricity being sold or purchased or that are denominated in a foreign currency that meets none of the criteria in paragraph [815-15-15-10(b)](https://asc.understandingaccounting.org/asc/815/15/#815-15-15-10) shall not be considered normal purchases and normal sales. ##### [815-10-15-51](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1bf222224d1325dcca5085216d61a15c485695d33d167319f25401bedf011ac6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance shall not be applied by analogy to the accounting for other types of contracts not meeting the stated criteria. ##### [815-10-15-52](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:f084dcdbd4cd1bcb2668f551d8856ccf818b6f7d2c11102f397cbb214fa85a76 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract is not subject to the requirements of this Subtopic if it entitles the holder to be compensated only if, as a result of an identifiable insurable event (other than a change in price), the holder incurs a liability or there is an adverse change in the value of a specific asset or liability for which the holder is at risk. Only those contracts for which payment of a claim is triggered only by a bona fide insurable exposure (that is, contracts comprising either solely insurance or both an insurance component and a derivative instrument) may qualify for this scope exception. To qualify, the contract must provide for a legitimate transfer of risk, not simply constitute a deposit or form of self-insurance. ##### [815-10-15-53](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:470cda3ddb711d1e977c6c33cb226afeee3ee1a2e38d32c1b7948fcbfd39ba82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following types of contracts written by insurance entities or held by the insureds are not subject to the requirements of this Subtopic for the reasons given: 1. a Traditional life insurance contracts. The payment of death benefits is the result of an identifiable insurable event (death of the insured) instead of changes in a variable. 2. b Traditional property and casualty contracts. The payment of benefits is the result of an identifiable insurable event (for example, theft or fire) instead of changes in a variable. ##### [815-10-15-54](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b7e9201f3df80c47f311755716c131b8df4ffa4417ee97f9c6a25d71f198d46b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition, some contracts with insurance or other entities combine derivative instruments with other insurance products or nonderivative contracts, for example, indexed annuity contracts, variable life insurance contracts, and property and casualty contracts that combine traditional coverages with foreign currency options. Contracts that consist of both derivative portions and nonderivative portions are addressed in paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1). However, insurance entities enter into other types of contracts that may be subject to the provisions of this Subtopic. ##### [815-10-15-55](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b5191c72dc23b2b5c5aa05d9e9eb8b3d9c054b6f32c6ca60417fd95954091b44 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A property and casualty contract that provides for the payment of benefits or claims as a result of both an identifiable insurable event and changes in a variable would in its entirety not be subject to the requirements of this Subtopic (and thus not contain an embedded derivative that is required to be separately accounted for as a derivative instrument) provided all of the following conditions are met: 1. a Benefits or claims are paid only if an identifiable insurable event occurs (for example, theft or fire). 2. b The amount of the payment is limited to the amount of the policyholder's incurred insured loss. 3. c The contract does not involve essentially assured amounts of cash flows (regardless of the timing of those cash flows) based on insurable events highly probable of occurrence because the insured would nearly always receive the benefits (or suffer the detriment) of changes in the variable. ##### [815-10-15-56](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-56) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:02ac66a59eb80627c78e46cc654bdb3b5f71f300a0bb0c2b0da8ae8bc9cd351b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there is an actuarially determined minimum amount of expected claim payments that are the result of insurable events that are highly probable of occurring under the contract, that portion of the contract does not qualify for the insurance scope exception if both of the following conditions are met: 1. a Those minimum payment cash flows are indexed to or altered by changes in a variable. 2. b Those minimum payment amounts are expected to be paid each policy year (or on another predictable basis). ##### [815-10-15-57](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:4e87b9674f60ffb97392463807c1b83700a6f593ec689d26230a7d221f9b8492 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an insurance contract has an actuarially determined minimum amount of expected claim payments that are highly probable of occurring, then effectively the amount of those claims is the contract's minimum [notional amount](https://asc.understandingaccounting.org/glossary/n/#notional-amount "A number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument. Sometimes other names are used. For example, the notional amount is called a face amount in some contracts.") in determining the embedded derivative under Section 815-15-25. ##### [815-10-15-58](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:508a7b3cee4cb18acc8684c47153cccc1fd36560e5296906e4f8dd9b7354013c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Financial guarantee contracts are not subject to this Subtopic only if they meet all of the following conditions: 1. a They provide for payments to be made solely to reimburse the guaranteed party for failure of the debtor to satisfy its required payment obligations under a nonderivative contract, either: 1. 1 At prespecified payment dates 2. 2 At accelerated payment dates as a result of either the occurrence of an event of default (as defined in the financial obligation covered by the guarantee contract) or notice of acceleration being made to the debtor by the creditor. 2. b Payment under the financial guarantee contract is made only if the debtor's obligation to make payments as a result of conditions as described in (a) is past due. 3. c The guaranteed party is, as a precondition in the contract (or in the back-to-back arrangement, if applicable) for receiving payment of any claim under the guarantee, exposed to the risk of nonpayment both at inception of the financial guarantee contract and throughout its term either through direct legal ownership of the guaranteed obligation or through a back-to-back arrangement with another party that is required by the back-to-back arrangement to maintain direct ownership of the guaranteed obligation. In contrast, financial guarantee contracts are subject to this Subtopic if they do not meet all three criteria, for example, if they provide for payments to be made in response to changes in another underlying such as a decrease in a specified debtor's creditworthiness. ##### [815-10-15-59](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-59) Pending content: yes Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:9abc42c92ac7e4370659db57a0c5c2d545ac46cd0bcca5e601b85aa8ee05e46f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Contracts that are not exchange-traded are not subject to the requirements of this Subtopic if the underlying on which the settlement is based is any one of the following: 1. a A climatic or geological variable or other physical variable. Climatic, geological, and other physical variables include things like the number of inches of rainfall or snow in a particular area and the severity of an earthquake as measured by the Richter scale. (See Example 13 \[paragraph [815-10-55-135](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-135)\].) 2. b The price or value of a nonfinancial asset of one of the parties to the contract provided that the asset is not readily convertible to cash. This scope exception applies only if both of the following are true: 1. 1 The nonfinancial assets are unique. 2. 2 The nonfinancial asset related to the underlying is owned by the party that would not benefit under the contract from an increase in the fair value of the nonfinancial asset. (If the contract is a call option, the scope exception applies only if that nonfinancial asset is owned by the party that would not benefit under the contract from an increase in the fair value of the nonfinancial asset above the option's strike price.) 3. c The fair value of a nonfinancial liability of one of the parties to the contract provided that the liability does not require delivery of an asset that is readily convertible to cash. 4. d Specified volumes of sales or service revenues of one of the parties to the contract. (This scope exception applies to contracts with settlements based on the volume of items sold or services rendered, for example, royalty agreements. This scope exception does not apply to contracts based on changes in sales or revenues due to changes in market prices.) Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [815-10-65-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-8)Contracts that are not exchange-traded are not subject to the requirements of this Subtopic if the underlying on which the settlement is based is any one of the following: 1. a A climatic or geological variable or other physical variable. Climatic, geological, and other physical variables include things like the number of inches of rainfall or snow in a particular area and the severity of an earthquake as measured by the Richter scale. (See Example 13 \[paragraph [815-10-55-135](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-135)\].) 2. b The price or value of a nonfinancial asset of one of the parties to the contract provided that the asset is not readily convertible to cash. This scope exception applies only if both of the following are true: 1. 1 The nonfinancial assets are unique. 2. 2 The nonfinancial asset related to the underlying is owned by the party that would not benefit under the contract from an increase in the fair value of the nonfinancial asset. (If the contract is a call option, the scope exception applies only if that nonfinancial asset is owned by the party that would not benefit under the contract from an increase in the fair value of the nonfinancial asset above the option's strike price.) 3. c The fair value of a nonfinancial liability of one of the parties to the contract provided that the liability does not require delivery of an asset that is readily convertible to cash. 4. d Specified volumes of sales or service revenues of one of the parties to the contract. (This scope exception applies to contracts with settlements based on the volume of items sold or services rendered, for example, royalty agreements. This scope exception does not apply to contracts based on changes in sales or revenues due to changes in market prices.) 5. e An underlying that is based on operations or activities specific to one of the parties to the contract. This scope exception applies to underlyings based on the financial operating results (or components of those results) of one of the parties to the contract. This scope exception also applies to underlyings based on the occurrence or nonoccurrence of an event specific to the operations or activities of one of the parties to the contract (such as obtaining regulatory approval, achieving a product development milestone, or achieving a greenhouse gas emissions reduction target). When evaluating whether operations or activities are specific to one of the parties to the contract, an entity does not need to consider whether the outcome is within its control. This scope exception does not apply to any of the following: 1. 1 Underlyings that are based on a market rate, market price, or market index (including those in paragraph [815-10-15-88(a) through (f)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-88)). (See Example 14A—Case F \[paragraph [815-10-55-143K](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-143K)\] and Case I \[paragraphs [815-10-55-143P through 55-143Q](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-143P) \] that illustrate the application of this exclusion to the scope exception.) 2. 2 Underlyings that are based on the price or performance (including default) of a financial asset or financial liability of one of the parties to the contract. For example, the scope exception does not apply to underlyings based on (i) a rate of return or a default rate on a pool of loans held by one of the parties to the contract or (ii) the occurrence or nonoccurrence of an event of default or other credit event by a borrower (or reference entity) on a loan held by one of the parties to the contract. (See Example 14A—Case J \[paragraphs [815-10-55-143R through 55-143S](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-143R) \] that illustrates the application of this exclusion to the scope exception.) 3. 3 Contracts involving an entity’s own equity that are subject to paragraph [815-10-15-74(a)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74) and Subtopic 815-40. 4. 4 Call options and put options on debt instruments that are subject to paragraphs [815-15-25-41 through 25-43](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-41) . Solely for purposes of applying the scope exception in (e), the term _party to the contract_ includes the parent, subsidiaries, or other entities consolidated by the parent for both consolidated financial statements and the standalone financial statements of individual entities within the consolidated group. ##### [815-10-15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-60) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:f546ad5111058da3bd97030cbfd4cf8d573f678d81248085328fa740442489f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a contract has more than one underlying and some, but not all, of them qualify for one of the scope exceptions in paragraph [815-10-15-59](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-59), the application of this Subtopic to that contract depends on its predominant characteristics. That is, the contract is subject to the requirements of this Subtopic if all of its underlyings, considered in combination, behave in a manner that is highly correlated with the behavior of any of the component variables that do not qualify for a scope exception. ##### [815-10-15-61](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-61) Pending content: yes Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:7f07b4f7f19f25f11601d144c9affcdc8342bd2774e979fb011a7368101cfff1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract based on any variable that is not specifically excluded by paragraph [815-10-15-59](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-59) is subject to the requirements of this Subtopic if it has the other two characteristics (initial net investment and net settlement) identified in this Subsection. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [815-10-65-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-8)[Paragraph superseded by Accounting Standards Update 2025-07.](https://asc.understandingaccounting.org/updates/asu-2025-07/) ##### [815-10-15-62](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:7021a93b80c6470154fe62893fb3e655a133817f1d8c8b82b268fdc0427702a9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 14 (see paragraph [815-10-55-142](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-142)) illustrates the application of paragraph [815-10-15-59(b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-59). ##### [815-10-15-63](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:7fcb4d9839a77948b183c427c0aaa8dc92330adc2a595df9af3a802e06ee5d64 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A derivative instrument (whether freestanding or embedded in another contract) whose existence serves as an impediment to recognizing a related contract as a sale by one party or a purchase by the counterparty is not subject to this Subtopic. An example is the existence of a call option enabling a transferor to repurchase transferred assets that is an impediment to sales accounting under Topic 860. Such a call option on transferred financial assets that are not readily obtainable would prevent accounting for that transfer as a sale. The consequence is that to recognize the call option would be to count the same thing twice. The holder of the option already recognizes in its financial statements the assets that it has the option to purchase. ##### [815-10-15-64](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:6679e3168fc3535bd03ed5089fd6f3b9be61d35279a0436f95851517f8540c86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A derivative instrument held by a transferor that relates to assets transferred in a transaction accounted for as a financing under Topic 860, but which does not itself serve as an impediment to sale accounting, is not subject to the requirements of this Subtopic if recognizing both the derivative instrument and either the transferred asset or the liability arising from the transfer would result in counting the same thing twice in the transferor's balance sheet. However, if recognizing both the derivative instrument and either the transferred asset or the liability arising from the transfer would not result in counting the same thing twice in the transferor's balance sheet, the derivative instrument shall be accounted for in accordance with this Subtopic. For related implementation guidance, see paragraph [815-10-55-41](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-41). ##### [815-10-15-65](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1e06180ea065b3c568a0f44020dce49df6262a2e648279c472910a9fc7d0a092 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-10-15-66](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:aeeccaa972298582226ba432305b03ba7c722f99952502b60f0bb0df5370eb87 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-10-15-67](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:60f4adbe8110a5db79520f4d3f7c1b886a0f9079b9013df64c5e83e9666b4e09 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A policyholder's investment in a life insurance contract that is accounted for under Subtopic 325-30 is not subject to this Subtopic. This scope exclusion does not affect the accounting by the issuer of the life insurance contract. ##### [815-10-15-68](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b9c3f03e2c9ad9c0a4a1755a3c36c4e4d7d2c026b9dd31245a1532f3680b673c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract that is accounted for under either paragraph [960-325-35-1](https://asc.understandingaccounting.org/asc/325/960/#325-960-35-1) or [960-325-35-3](https://asc.understandingaccounting.org/asc/325/960/#325-960-35-3) is not subject to this Subtopic. This scope exception applies only to the party that accounts for the contract under Topic 960. ##### [815-10-15-68A](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-68A) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:668eb2aa48de60fe208952dc50bb8a778feadd8c3808c6d3f53d803c5f49c796 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The wrapper of a synthetic guaranteed investment contract that meets the definition of a [fully benefit-responsive investment contract](https://asc.understandingaccounting.org/glossary/f/#fully-benefit-responsive-investment-contract "An investment contract is considered fully benefit-responsive if all of the following criteria are met for that contract, analyzed on an individual basis: The investment contract is effected directly between the plan and the issuer and prohibits the plan from assigning or selling the contract or its proceeds to another party without the consent of the issuer. Either of the following conditions exists: The repayment of principal and interest credited to participants in the plan is a financial obligation of the issuer of the investment contract. Prospective interest crediting rate adjustments are provided to participants in the plan on a designated pool of investments held by the plan or the contract issuer, whereby a financially responsible third party, through a contract generally referred to as a wrapper, must provide assurance that the adjustments to the interest crediting rate will not result in a future interest crediting rate that is less than zero. If an event has occurred such that realization of full contract value for a particular investment contract is no longer probable (for example, a significant decline in creditworthiness of the contract issuer or wrapper provider), the investment contract shall no longer be considered fully benefit-responsive. The terms of the investment contract require all permitted participant-initiated transactions with the plan to occur at contract value with no conditions, limits, or restrictions. Permitted participant-initiated transactions are those transactions allowed by the plan, such as any of the following: Withdrawals for benefits Loans Transfers to other funds within the plan. An event that limits the ability of the plan to transact at contract value with the issuer and that also limits the ability of the plan to transact at contract value with the participants in the plan, such as any of the following, must be probable of not occurring: Premature termination of the contracts by the plan Plant closings Layoffs Plan termination Bankruptcy Mergers Early retirement incentives. The plan itself must allow participants reasonable access to their funds. If access to funds is substantially restricted by plan provisions, investment contracts held by those plans may not be considered to be fully benefit-responsive. For example, if plan participants are allowed access at contract value to all or a portion of their account balances only upon termination of their participation in the plan, it would not be considered reasonable access and, therefore, investment contracts held by that plan would generally not be deemed to be fully benefit-responsive. However, in plans with a single investment fund that allow reasonable access to assets by inactive participants, restrictions on access to assets by active participants consistent with the objective of the plan (for example, retirement or health and welfare benefits) will not affect the benefit responsiveness of the investment contracts held by those single-fund plans. Also, if a plan limits participants' access to their account balances to certain specified times during the plan year (for example, semiannually or quarterly) to control the administrative costs of the plan, that limitation generally would not affect the benefit responsiveness of the investment contracts held by that plan. In addition, administrative provisions that place short-term restrictions (for example, three or six months) on transfers to competing fixed-rate investment options to limit arbitrage among those investment options (equity wash provisions) would not affect a contract's benefit responsiveness.") that is held by an employee benefit plan is excluded from the scope of this Subtopic. ##### [815-10-15-69](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1f55f3b7f4fda67b99a80bb7633d890d9f7445ea672224f809dfd598006f3110 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the holder of a commitment to originate a loan (that is, the potential borrower), that commitment is not subject to the requirements of this Subtopic. For issuers of commitments to originate mortgage loans that will be held for investment purposes, as discussed in paragraphs [948-310-25-3 through 25-4](https://asc.understandingaccounting.org/asc/310/948/#310-948-25-3) , those commitments are not subject to this Subtopic. In addition, for issuers of [loan commitments](https://asc.understandingaccounting.org/glossary/l/#loan-commitment "Loan commitments are legally binding commitments to extend credit to a counterparty under certain prespecified terms and conditions. They have fixed expiration dates and may either be fixed-rate or variable-rate. Loan commitments can be either of the following: Revolving (in which the amount of the overall commitment is reestablished upon repayment of previously drawn amounts) Nonrevolving (in which the amount of the overall commitment is not reestablished upon repayment of previously drawn amounts).") to originate other types of loans (that is, other than mortgage loans), those commitments are not subject to the requirements of this Subtopic. ##### [815-10-15-70](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:a3cf2af200ef05ca4be904e0eee31485ef86c1e6a11e809df4295c039b7a94cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The preceding paragraph does not affect the accounting for commitments to purchase or sell mortgage loans or other types of loans at a future date. Those types of loan commitments must be evaluated under the definition of a derivative instrument to determine whether this Subtopic applies. ##### [815-10-15-71](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-71) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:f896bb7a48c94c9744a1669a50b74cbcbc9afe064d632f3fecbe25cf16ff9eb0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Notwithstanding the characteristics discussed in paragraph [815-10-15-83](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83), loan commitments that relate to the origination of mortgage loans that will be held for sale, as discussed in paragraph [948-310-25-3](https://asc.understandingaccounting.org/asc/310/948/#310-948-25-3), shall be accounted for as derivative instruments by the issuer of the loan commitment (that is, the potential lender). ##### [815-10-15-72](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-72) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:4a55116209f840fc96b5648fc1b80e72e4d21b5dd5638f4b8644d7e3d1a539ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An interest-only strip or principal-only strip is not subject to the requirements of this Subtopic provided the strip has both of the following characteristics: 1. a It represents the right to receive only a specified proportion of the contractual interest cash flows of a specific debt instrument or a specified proportion of the contractual principal cash flows of that debt instrument. 2. b It does not incorporate any terms not present in the original debt instrument. ##### [815-10-15-73](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-73) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:7a37d90953ceb24de654a1f62dc98cfb23ba39e93cf2ef110057764355569bc0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An allocation of a portion of the interest or principal cash flows of a specific debt instrument as reasonable compensation for stripping the instrument or to provide adequate compensation to a servicer (as defined in Topic 860) would meet the intended narrow nature of the scope exception provided in this paragraph. However, an allocation of a portion of the interest or principal cash flows of a specific debt instrument to provide for a guarantee of payments, for servicing in excess of adequate compensation, or for any other purpose would not meet the intended narrow nature of the scope exception. ##### [815-10-15-74](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74) Pending content: yes Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:27573c7e704ba439eb0ca467801189d236e639ed085839309bc9d63963b65fb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Notwithstanding the conditions of paragraphs [815-10-15-13 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) , the reporting entity shall not consider the following contracts to be derivative instruments for purposes of this Subtopic: 1. a Contracts issued or held by that reporting entity that are both: 1. 1 Indexed to its own stock (see Section 815-40-15) 2. 2 Classified in stockholders' equity in its statement of financial position (see Section 815-40-25). 2. b Contracts issued by the entity that are subject to Topic 718. If any such contract ceases to be subject to Topic 718 in accordance with paragraphs [718-10-35-9 through 35-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-9) , the terms of that contract shall then be analyzed to determine whether the contract is subject to this Subtopic. An award that ceases to be subject to Topic 718 in accordance with those paragraphs shall be analyzed to determine whether it is subject to this Subtopic. 3. c Any of the following contracts: 1. 1 A contract between an acquirer and a seller to enter into a business combination 2. 2 A contract to enter into an [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities.") 3. 3 A contract between one or more NFPs to enter into a [merger of not-for-profit entities](https://asc.understandingaccounting.org/glossary/m/#merger-of-not-for-profit-entities "A transaction or other event in which the governing bodies of two or more not-for-profit entities cede control of those entities to create a new not-for-profit entity.") 4. 4 In a [joint venture’s](https://asc.understandingaccounting.org/glossary/j/#joint-venture "An entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a joint venture frequently is to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a joint venture. The ownership of a joint venture seldom changes, and its equity interests usually are not traded publicly. A minority public ownership, however, does not preclude an entity from being a joint venture. As distinguished from a corporate joint venture, a joint venture is not limited to corporate entities.") separate financial statements, a contract between a joint venture and its venturers related to the formation of the joint venture accounted for in accordance with Subtopic 805-60. 4. d Forward contracts that require settlement by the reporting entity's delivery of cash in exchange for the acquisition of a fixed number of its equity shares (forward purchase contracts for the reporting entity's shares that require physical settlement) that are accounted for under paragraphs [480-10-30-3 through 30-5](https://asc.understandingaccounting.org/asc/480/10/#480-10-30-3) , [480-10-35-3](https://asc.understandingaccounting.org/asc/480/10/#480-10-35-3), and [480-10-45-3](https://asc.understandingaccounting.org/asc/480/10/#480-10-45-3). Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [815-10-65-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-8)Notwithstanding the conditions of paragraphs [815-10-15-13 through 15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) and [815-10-15-62 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) , the reporting entity shall not consider the following contracts to be derivative instruments for purposes of this Subtopic: 1. a Contracts issued or held by that reporting entity that are both: 1. 1 Indexed to its own stock (see Section 815-40-15) 2. 2 Classified in stockholders' equity in its statement of financial position (see Section 815-40-25). 2. b Contracts issued by the entity that are subject to Topic 718. If any such contract ceases to be subject to Topic 718 in accordance with paragraphs [718-10-35-9 through 35-14](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-9) , the terms of that contract shall then be analyzed to determine whether the contract is subject to this Subtopic. An award that ceases to be subject to Topic 718 in accordance with those paragraphs shall be analyzed to determine whether it is subject to this Subtopic. 3. c Any of the following contracts: 1. 1 A contract between an acquirer and a seller to enter into a business combination 2. 2 A contract to enter into an [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities.") 3. 3 A contract between one or more NFPs to enter into a [merger of not-for-profit entities](https://asc.understandingaccounting.org/glossary/m/#merger-of-not-for-profit-entities "A transaction or other event in which the governing bodies of two or more not-for-profit entities cede control of those entities to create a new not-for-profit entity.") 4. 4 In a [joint venture’s](https://asc.understandingaccounting.org/glossary/j/#joint-venture "An entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a joint venture frequently is to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a joint venture. The ownership of a joint venture seldom changes, and its equity interests usually are not traded publicly. A minority public ownership, however, does not preclude an entity from being a joint venture. As distinguished from a corporate joint venture, a joint venture is not limited to corporate entities.") separate financial statements, a contract between a joint venture and its venturers related to the formation of the joint venture accounted for in accordance with Subtopic 805-60. 4. d Forward contracts that require settlement by the reporting entity's delivery of cash in exchange for the acquisition of a fixed number of its equity shares (forward purchase contracts for the reporting entity's shares that require physical settlement) that are accounted for under paragraphs [480-10-30-3 through 30-5](https://asc.understandingaccounting.org/asc/480/10/#480-10-30-3) , [480-10-35-3](https://asc.understandingaccounting.org/asc/480/10/#480-10-35-3), and [480-10-45-3](https://asc.understandingaccounting.org/asc/480/10/#480-10-45-3). ##### [815-10-15-75](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-75) Pending content: yes Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:2987b621ee7090cf3882291d2f712741ede381df76e785e231560ea41f65702d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The scope exceptions in paragraph [815-10-15-74](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74) do not apply to either of the following: 1. a The counterparty in those contracts. For example, the scope exception in (b) in the preceding paragraph related to share-based compensation arrangements does not apply to equity instruments (including stock options) received by nonemployees as compensation for goods and services. 2. b A contract that an entity either can or must settle by issuing its own equity instruments but that is indexed in part or in full to something other than its own stock. That contract can be a derivative instrument for the issuer under paragraphs [815-10-15-13 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) , in which case it would be accounted for as a liability or an asset in accordance with the requirements of this Subtopic. For example, a forward contract that is indexed to both an entity's own stock and currency exchange rates does not qualify for the exception in (a) in the preceding paragraph with respect to that entity's accounting because the forward contract is indexed in part to something other than that entity's own stock (namely, currency exchange rates). Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [815-10-65-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-8)The scope exceptions in paragraph [815-10-15-74](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74) do not apply to either of the following: 1. a The counterparty in those contracts. For example, the scope exception in (b) in paragraph [815-10-15-74](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74)related to share-based compensation arrangements does not apply to equity instruments (including stock options) received by nonemployees as compensation for goods and services. 2. b A contract that an entity either can or must settle by issuing its own equity instruments but that is indexed in part or in full to something other than its own stock. That contract can be a derivative instrument for the issuer under paragraphs [815-10-15-13 through 15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) and [815-10-15-62 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) , in which case it would be accounted for as a liability or an asset in accordance with the requirements of this Subtopic. For example, a forward contract that is indexed to both an entity's own stock and currency exchange rates does not qualify for the exception in (a) in paragraph [815-10-15-74](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74)with respect to that entity's accounting because the forward contract is indexed in part to something other than that entity's own stock (namely, currency exchange rates). ##### [815-10-15-75A](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-75A) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:9f60514830c3eecd7d3bab8bcaa7202ebb89a4efef739f8ca916e14b565ddf49 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of evaluating whether a financial instrument meets the scope exception in paragraph [815-10-15-74(a)(1)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74), a [down round feature](https://asc.understandingaccounting.org/glossary/d/#down-round-feature "A feature in a financial instrument that reduces the strike price of an issued financial instrument if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or issues an equity-linked financial instrument with a strike price below the currently stated strike price of the issued financial instrument. A down round feature may reduce the strike price of a financial instrument to the current issuance price, or the reduction may be limited by a floor or on the basis of a formula that results in a price that is at a discount to the original exercise price but above the new issuance price of the shares, or may reduce the strike price to below the current issuance price. A standard antidilution provision is not considered a down round feature.") shall be excluded from the consideration of whether the instrument is indexed to the entity's own stock. ##### [815-10-15-76](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-76) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:2b46762938b8487e91295593826719fb957f1e91e1a8f4ba778148adafc71cb0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Temporary equity is considered stockholders' equity for purposes of the scope exception in paragraph [815-10-15-74(a)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74) even if it is required to be displayed outside of the permanent equity section. ##### [815-10-15-77](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-77) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:63916fc6861c3085ebacf6e13b2f93d7d5960bb64ba37bb51ce07dafb9eaaba5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on determining whether a freestanding financial instrument or embedded feature is not precluded from qualifying for the first part of the scope exception in paragraph [815-10-15-74(a)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74), see the guidance beginning in paragraph [815-40-15-5](https://asc.understandingaccounting.org/asc/815/40/#815-40-15-5).For guidance on determining whether a freestanding financial instrument or embedded feature qualifies for the second part of the scope exception in paragraph [815-10-15-74(a)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74), see the guidance beginning in paragraph [815-40-25-1](https://asc.understandingaccounting.org/asc/815/40/#815-40-25-1). ##### [815-10-15-78](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-78) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:4c204d0f9fbe76b85ceef6730b78c55362fbc413e6227f3e09ebfb45a4ef60bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-40-25-39](https://asc.understandingaccounting.org/asc/815/40/#815-40-25-39) explains that, for purposes of evaluating under this Subtopic whether an embedded derivative indexed to an entity's own stock would be classified in stockholders' equity if freestanding, the additional considerations necessary for equity classifications beginning in paragraph [815-40-25-7](https://asc.understandingaccounting.org/asc/815/40/#815-40-25-7) do not apply if the hybrid contract is a convertible debt instrument in which the holder may only realize the value of the conversion option by exercising the option and receiving the entire proceeds in a fixed number of shares or the equivalent amount of cash (at the discretion of the issuer). ##### [815-10-15-79](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-79) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:fa21e9c35652fa298365e9d7b13142573ea71d59c1b807e5ab9581d1eb442354 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Leases that are within the scope of Topic 842 are not derivative instruments subject to this Subtopic, although a derivative instrument embedded in a lease may be subject to the requirements of paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1). ##### [815-10-15-80](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-80) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:c33cd399525911ae8e679e7a3839c97f88e92a4a63964394ee7fff63f51d3dc0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Residual value guarantees that are subject to the requirements of Topic 842 on leases are not subject to the requirements of this Subtopic. ##### [815-10-15-81](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-81) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:3f8ffaecad30603f67e20ce0f667bbac0536903552c6610cacfa5c0c72141987 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A third-party residual value guarantor shall consider the guidance in this Subtopic for all residual value guarantees that it provides to determine whether they are derivative instruments and whether they qualify for any of the scope exceptions in this Subtopic. The guarantees described in paragraph [842-10-15-43](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-43) for which the exceptions of paragraphs [460-10-15-7(b)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-7) and [460-10-25-1(a)](https://asc.understandingaccounting.org/asc/460/10/#460-10-25-1) do not apply are subject to the initial recognition, initial measurement, and disclosure requirements of Topic 460. ##### [815-10-15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-82) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:105cea8bcf96e0abfca68623c4e7fb5d923cdd16b013bb2468b41a606fc72eac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Registration payment arrangements within the scope of Subtopic 825-20 are not subject to the requirements of this Subtopic. The exception in this paragraph applies to both the issuer that accounts for the arrangement pursuant to that Subtopic and the counterparty. ##### [815-10-15-82A](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-82A) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:300a0d0ad5da68e65f4d4924cd06b163832a8b97dc3e0cfe20b2e299789f60c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Fixed-odds wagering contracts for an entity operating as a casino and for the casino operations of other entities are within the scope of Topic 606 on revenue from contracts with customers. See paragraph [924-815-15-1](https://asc.understandingaccounting.org/asc/815/924/#815-924-15-1). ##### [815-10-15-82B](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-82B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b1374d5ba5ef4f2a39a20a68d5f0907e50713a72e6ac183f056ad62742ee96fa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [818-10-65-1](https://asc.understandingaccounting.org/asc/818/10/#818-10-65-1)[Environmental credits](https://asc.understandingaccounting.org/glossary/e/#environmental-credit "(P) December 16, 2027; (N) December 16, 2028818-10-65-1An enforceable right that is acquired, internally generated, granted by a regulatory agency or its designee(s), or received in a nonreciprocal transfer that is not a grant from a regulator or its designee(s) that meets all of the following criteria:Lacks physical substance and is not a financial asset.Is represented to prevent, control, reduce, or remove emissions or other pollution.Is, or previously was, separately transferable in an exchange transaction. If an item is no longer separately transferable in an exchange transaction, an entity must be able to use that item to satisfy an environmental credit obligation to meet this criterion.Is not an income tax credit that may be used to settle an entity’s income tax liability, regardless of whether the entity has a tax liability or intends to use the credit for that purpose.An environmental credit that meets the above criteria may exist in a variety of forms, including (but not limited to) credits, certificates, allowances, and offsets.") and [environmental credit obligations](https://asc.understandingaccounting.org/glossary/e/#environmental-credit-obligation "(P) December 16, 2027; (N) December 16, 2028818-10-65-1A regulatory compliance obligation arising from existing or enacted laws, statutes, or ordinances represented to prevent, control, reduce, or remove emissions or other pollution that may be settled with environmental credits. Obligations within the scope of Subtopic 410-30 are not environmental credit obligations.") shall be accounted for in accordance with Topic 818 and are not subject to this Subtopic. #### Definition of Derivative Instrument ##### [815-10-15-83](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:390d682b2f57d895cf7c555b457354fd86593db5ac0c8c8640cde55a0f5389c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A derivative instrument is a financial instrument or other contract with all of the following characteristics: 1. a Underlying, notional amount, [payment provision](https://asc.understandingaccounting.org/glossary/p/#payment-provision "A payment provision specifies a fixed or determinable settlement to be made if the underlying behaves in a specified manner."). The contract has both of the following terms, which determine the amount of the settlement or settlements, and, in some cases, whether or not a settlement is required: 1. 1 One or more underlyings 2. 2 One or more notional amounts or payment provisions or both. 2. b Initial net investment. The contract requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. 3. c Net settlement. The contract can be settled net by any of the following means: 1. 1 Its terms implicitly or explicitly require or permit net settlement. 2. 2 It can readily be settled net by a means outside the contract. 3. 3 It provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. ##### [815-10-15-84](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-84) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:923f63a259be42dd94f30b92e4dbb30d03465600fe68d1f98f05a7d649b55e2d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Topic, both of the following are collectively referred to as derivative instruments: 1. a A derivative instrument included within the scope of this Subtopic by this Subsection 2. b An embedded derivative that has been separated from a host contract as required by paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1). ##### [815-10-15-85](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-85) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:e4b4126ce0b4ce93789c05ef4617c316634dd3040b0dce2efdf368991f053599 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The terms _underlying_, _notional amount_, _payment provision_, and _settlement_ are intended to include the plural forms in the remainder of this Topic. Including both the singular and plural forms is more accurate but much more awkward and impairs the readability. ##### [815-10-15-86](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-86) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:cc1d1f81e4031ec39f424777dde7e2553d477d1d530fee2aa8257a683f7f170a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Following is further discussion of each of the three characteristics of a derivative instrument: 1. a Underlying, notional amount, payment provision 2. b Initial net investment 3. c Net settlement. ##### [815-10-15-87](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-87) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:46e1d4403021e359ff6c195190eee7e662e537ce2e5af94706260e205e134d2f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Following is further discussion of the features that relate to the settlement amount(s) of a derivative instrument: 1. a Underlying 2. b Notional amount 3. c Payment provision. ##### [815-10-15-88](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-88) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:a569a68105ad61c19ce6cf2047f7e2d2d1d1903bae7790c98c67f9b4d770cd74 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument. An underlying usually is one or a combination of the following: 1. a A security price or security price index 2. b A commodity price or commodity price index 3. c An interest rate or interest rate index 4. d A credit rating or credit index 5. e An exchange rate or exchange rate index 6. f An insurance index or catastrophe loss index 7. g A climatic or geological condition (such as temperature, earthquake severity, or rainfall), another physical variable, or a related index 8. h The occurrence or nonoccurrence of a specified event (such as a scheduled payment under a contract). ##### [815-10-15-89](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-89) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:2d8dae73b366565920c02214bdfdc898c9a96f31d8e21dbc3ad1a82681afc2f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, an underlying may be any variable whose changes are observable or otherwise objectively verifiable. An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. ##### [815-10-15-90](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-90) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1f921a960f1fe43a0801013cd77fd8217a51a75107c614e6566ba95b5c40f8fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Reference to either a notional amount or a payment provision is needed in relation to an underlying to compute the contract's periodic settlements and resulting changes in fair value. ##### [815-10-15-91](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-91) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:a9356662636011cd29725e0993ff4775a9a415d686433d34baeb19dc6a2e95a4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 3 (see paragraph [815-10-55-77](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-77)) illustrates the determination of an underlying if a commodity contract includes a fixed element and a variable element. ##### [815-10-15-92](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-92) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:f0e304cd0750ccd92cd3514a3fecd9760bb58034ea4e1e43579bf03cf7004736 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A notional amount is a number of currency units, shares, bushels, pounds, or other units specified in the contract. Other names are used, for example, the notional amount is called a [face amount](https://asc.understandingaccounting.org/glossary/f/#face-amount "See Notional Amount.") in some contracts. The settlement of a derivative instrument with a notional amount is determined by interaction of that notional amount with the underlying. The interaction may be simple multiplication, or it may involve a formula with leverage factors or other constants. As defined in the glossary, the [effective notional amount](https://asc.understandingaccounting.org/glossary/e/#effective-notional-amount "The effective notional amount is the stated notional amount adjusted for any leverage factor.") is the stated notional amount adjusted for any leverage factor. If a requirements contract contains explicit provisions that support the calculation of a determinable amount reflecting the buyer's needs, then that contract has a notional amount. See paragraphs [815-10-55-5 through 55-7](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-5) for related implementation guidance. For implementation guidance on identifying a commodity contract's notional amount, see paragraph [815-10-55-5](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-5). ##### [815-10-15-93](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-93) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:77e816936ab2b7e8eb85e204cb2b778b8a2bd2d46aa3b35a1494b4a1ce808a0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As defined in the glossary, a payment provision specifies a fixed or determinable settlement to be made if the underlying behaves in a specified manner. For example, a derivative instrument might require a specified payment if a referenced interest rate increases by 300 basis points. ##### [815-10-15-94](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-94) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:cf4860134df836e920e024bb7201b99976b26559f7ed3e85b8f5d62077c5801b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Many derivative instruments require no initial net investment. Some require an initial net investment as compensation for one or both of the following: 1. a Time value (for example, a premium on an option) 2. b Terms that are more or less favorable than market conditions (for example, a premium on a forward purchase contract with a price less than the current forward price). Others require a mutual exchange of currencies or other assets at inception, in which case the net investment is the difference in the fair values of the assets exchanged. ##### [815-10-15-95](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-95) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:3080e23db4942a0a3ca25ac85bc2a578935938916cd2620c844f66b95c0f30ad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A derivative instrument does not require an initial net investment in the contract that is equal to the notional amount (or the notional amount plus a premium or minus a discount) or that is determined by applying the notional amount to the underlying. For example: 1. a A commodity futures contract generally requires no net investment, while purchasing the same commodity requires an initial net investment equal to its market price. However, both contracts reflect changes in the price of the commodity in the same way (that is, similar gains or losses will be incurred). 2. b A swap or forward contract generally does not require an initial net investment unless the terms favor one party over the other. 3. c An option generally requires that one party make an initial net investment (a premium) because that party has the rights under the contract and the other party has the obligations. ##### [815-10-15-96](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-96) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:8f827cd9dc6fa18d2ef5754735ca7b5d7edf27ab82c8333aec33c74269ec0d77 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the initial net investment in the contract (after adjustment for the time value of money) is less, by more than a nominal amount, than the initial net investment that would be commensurate with the amount that would be exchanged either to acquire the asset related to the underlying or to incur the obligation related to the underlying, the characteristic in paragraph [815-10-15-83(b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) is met. The amount of that asset acquired or liability incurred should be comparable to the effective notional amount of the contract. This does not imply that a slightly off-market contract cannot be a derivative instrument in its entirety. That determination is a matter of facts and circumstances and shall be evaluated on a case-by-case basis. Example 16, Case C (see paragraph [815-10-55-166](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-166)) illustrates the guidance in this paragraph. ##### [815-10-15-97](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-97) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:9a1ad5a462e36bb39ab5fc77e24c444836ce39f9f50d90b426ae5457d0875fd8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract that requires an initial net investment in the contract that is in excess of the amount determined by applying the effective notional amount to the underlying is not a derivative instrument in its entirety. Example 16, Case A (see paragraph [815-10-55-150](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-150)) illustrates such a contract. ##### [815-10-15-98](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-98) Pending content: yes Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:ad413bb6255c196b2d3ed7faacc9e763660d02c183ffaa9652c18764cd74834a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The phrase _initial net investment_ is stated from the perspective of only one party to the contract, but it determines the application of this Subtopic for both parties. Even though a contract may be a derivative instrument as described in paragraphs [815-10-15-13 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) for both parties, the scope exceptions in paragraphs [815-10-15-74 through 15-75](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74) apply only to the issuer of the contract and will result in different reporting by the two parties. The normal purchases and sales scope exception (beginning in paragraph [815-10-15-22](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-22)) also may apply to one of the parties but not the other. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [815-10-65-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-8)The phrase _initial net investment_ is stated from the perspective of only one party to the contract, but it determines the application of this Subtopic for both parties. Even though a contract may be a derivative instrument as described in paragraphs [815-10-15-13 through 15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) and [815-10-15-62 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) for both parties, the scope exceptions in paragraphs [815-10-15-74 through 15-75](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74) apply only to the issuer of the contract and will result in different reporting by the two parties. The normal purchases and sales scope exception (beginning in paragraph [815-10-15-22](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-22)) also may apply to one of the parties but not the other. ##### [815-10-15-99](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-99) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:1c1fdd409a882764548de4da8c9db48f69151bfe71295bcc75a760560a216376 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract fits the description in paragraph [815-10-15-83(c)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) if its settlement provisions meet criteria for any of the following: 1. a Net settlement under contract terms 2. b Net settlement through a market mechanism 3. c Net settlement by delivery of derivative instrument or asset readily convertible to cash. ##### [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:e627febb02b698614869b1d598f583e02276e3c1923534758d95bca0deda53ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this form of net settlement, neither party is required to deliver an asset that is associated with the underlying and that has a principal amount, stated amount, face value, number of shares, or other denomination that is equal to the notional amount (or the notional amount plus a premium or minus a discount). (For example, most interest rate swaps do not require that either party deliver interest-bearing assets with a principal amount equal to the notional amount of the contract.) Net settlement may be made in cash or by delivery of any other asset (such as the right to receive future payments—see the discussion beginning in paragraph [815-10-15-104](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-104)), whether or not that asset is readily convertible to cash. ##### [815-10-15-101](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-101) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:f683a26bb771440bdfd966cb8ea21c6948e97b94e2628d150971d6f2b76570fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Further considerations in the application of this form of net settlement are addressed as follows: 1. a Net share settlement 2. b Net settlement in the event of nonperformance or default 3. c Structured settlement as net settlement 4. d Net settlement of a debt instrument through exercise of an embedded put option or call option. ##### [815-10-15-102](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-102) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:287119e246be1cd515eaf27a2a0c7518c6cb43b162e8bedbc95dae92f8ab297b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The net settlement criterion as described in paragraph [815-10-15-83(c)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) and related paragraphs in this Subsection is met if a contract provides for [net share settlement](https://asc.understandingaccounting.org/glossary/n/#net-share-settlement "The party with a loss delivers to the party with a gain shares with a current fair value equal to the gain.") at the election of either party. Therefore, if either counterparty could net share settle a contract, then it would be considered to have the net settlement characteristic of a derivative instrument regardless of whether the net shares received were readily convertible to cash as described in paragraph [815-10-15-119](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-119) or were restricted for more than 31 days as discussed beginning in paragraph [815-10-15-130](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-130). While this conclusion applies to both investors and issuers of contracts, issuers of those net share settled contracts shall consider whether such contracts qualify for the scope exception in paragraph [815-10-15-74(a)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-74). See Example 5 (paragraph [815-10-55-90](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-90)). ##### [815-10-15-103](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-103) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:0d00fb5710c72599cc8d5b4a9036e3ad10a68667d90f4c82027424b1f0f8004b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Penalties for nonperformance may give a contract the characteristic of net settlement. For example: 1. a A penalty for nonperformance in a purchase order is a net settlement provision if the amount of the penalty is based on changes in the price of the items that are the subject of the contract. 2. b A fixed penalty for nonperformance is not a net settlement provision. 3. c A contract that contains a variable penalty for nonperformance based on changes in the price of the items that are the subject of the contract does not contain a net settlement provision as discussed beginning in paragraph [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) if it also contains an incremental penalty of a fixed amount (or fixed amount per unit) that would be expected to be significant enough at all dates during the remaining term of the contract to make the possibility of nonperformance remote. If a contract includes such a provision, it effectively requires performance, that is, requires the party to deliver an asset that is associated with the underlying. The assessment of the fixed incremental penalty shall be performed only at the contract's inception. The magnitude of the fixed incremental penalty shall be assessed on a standalone basis as a disincentive for nonperformance, not in relation to the overall penalty. 4. d An [asymmetrical default provision](https://asc.understandingaccounting.org/glossary/a/#asymmetrical-default-provision "A nonperformance penalty provision that requires the defaulting party to compensate the nondefaulting party for any loss incurred but does not allow the defaulting party to receive the effect of favorable price changes.") does not give a commodity forward contract the characteristic described as net settlement beginning in paragraph [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100). For related implementation guidance, see the discussion beginning in paragraph [815-10-55-10](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-10). ##### [815-10-15-104](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-104) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:dc2e52c38885c5ba075d563fc86e1e1f66a5c98e3c731c71c0cb208f68bb8037 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Upon settlement of a contract, in lieu of immediate net cash settlement of the gain or loss under the contract, the holder may receive a financial instrument involving terms that would provide for the gain or loss under the contract to be received or paid over a specified time period. A contract that provides for such a structured payout of the gain (or loss) resulting from that contract meets the characteristic of net settlement in paragraphs [815-10-15-100 through 15-109](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) if the fair value of the cash flows to be received (or paid) by the holder under the structured payout are approximately equal to the amount that would have been received (or paid) if the contract had provided for an immediate payout related to settlement of the gain (or loss) under the contract. The fact that a contract accomplishes settlement by requiring the party in a loss position under the contract to make cash payments over a specified timeframe to the party in a gain position (in lieu of immediate cash settlement of the gain) does not preclude the contract from meeting the characteristic of net settlement in those paragraphs. ##### [815-10-15-105](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-105) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:8cd6955fc1d7877df1df853bcb1a89039be4711f285f86f9bb428e02dc593dd5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract that requires additional investing or borrowing to obtain the benefits of the contract's gain only over time as a traditional adjustment of the yield on the amount invested or the interest element on the amount borrowed does not meet the characteristic of net settlement. ##### [815-10-15-106](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-106) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:0b9cd08a8d0b88e2d5962326dac155a2644f8db396ec8b2873c88a8aec530185 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Contracts that require one party to the contract to invest funds in or borrow funds from the other party so that the party in a gain position under the contract can obtain the value of that gain over time as a nontraditional adjustment of the yield on the amount invested or the interest element on the amount borrowed may meet the characteristic of net settlement. See related implementation guidance beginning in paragraph [815-10-55-19](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-19). ##### [815-10-15-107](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-107) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:cd96dd31e1507fb924351e3ca33c0ae65f8b785ae38a4c5257e6837754e3d2c3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The potential settlement of the debtor's obligation to the creditor that would occur upon exercise of a put option or call option embedded in a debt instrument meets the net settlement criterion as discussed beginning in paragraph [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100) because neither party is required to deliver an asset that is associated with the underlying. Specifically: 1. a The debtor does not receive an asset when it settles the debt obligation in conjunction with exercise of the put option or call option. 2. b The creditor does not receive an asset associated with the underlying. ##### [815-10-15-108](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-108) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b7c8a4a1d69030de1e38ea3be97931e17ee84d70c3518e2e14b5a81be470e8e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the preceding paragraph shall be applied under both of the following circumstances: 1. a When applying paragraph [815-15-25-1(c)](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1) to a put option or call option (including a prepayment option) embedded in a debt instrument 2. b When analyzing the net settlement criterion (see guidance beginning in paragraph [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100)) for a freestanding call option held by the debtor on its own debt instrument and for a freestanding put option issued by the debtor on its own debt instrument. ##### [815-10-15-109](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-109) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:3caab2d471b7132e5d61900af549a3560af07c5a9d2dcbda8f6eedb94b3c4e1e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in paragraph [815-10-15-107](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-107) shall not be applied under either of the following circumstances: 1. a To put or call options that are added to a debt instrument by a third party contemporaneously with or after the issuance of a debt instrument. (In that circumstance, see paragraph [815-10-15-6](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-6).) 2. b By analogy to an embedded put or call option in a hybrid instrument that does not contain a debt host contract. ##### [815-10-15-109A](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-109A) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:4d74c54ff1733c1ebe47bf227bedb253fc1f36d7aa307e0be96f4b8a31fcb382 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Further considerations are addressed as follows: 1. a Primary characteristics of market mechanism 2. b Indicators of primary characteristics of market mechanism 3. c Effects of an assignment clause on market mechanism 4. d Ongoing evaluation of market mechanism. ##### [815-10-15-110](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:edd219eda83570d3ee23b0ba77667211f82d129ccf62594d2ba2088517c265fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this form of net settlement, one of the parties is required to deliver an asset of the type described in paragraph [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100), but there is an established market mechanism that facilitates net settlement outside the contract. (For example, an exchange that offers a ready opportunity to sell the contract or to enter into an offsetting contract.) Market mechanisms may have different forms. Many derivative instruments are actively traded and can be closed or settled before the contract's expiration or maturity by net settlement in active markets. ##### [815-10-15-111](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-111) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:55d580a36a2fc4123decfeed654a79c3d90edefb54f61b7ad77b853805740343 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The term _market mechanism_ is to be interpreted broadly and includes any institutional arrangement or other agreement having the requisite characteristics. Regardless of its form, an established market mechanism must have all of the following primary characteristics: 1. a It is a means to settle a contract that enables one party to readily liquidate its net position under the contract. A market mechanism is a means to realize the net gain or loss under a particular contract through a net payment. Net settlement may occur in cash or any other asset. A method of settling a contract that results only in a gross exchange or delivery of an asset for cash (or other payment in kind) does not satisfy the requirement that the mechanism facilitate net settlement. 2. b It results in one party to the contract becoming fully relieved of its rights and obligations under the contract. A market mechanism enables one party to the contract to surrender all future rights or avoid all future performance obligations under the contract. Contracts that do not permit assignment of the contract from the original issuer to another party do not meet the characteristic of net settlement through a market mechanism. The ability to enter into an offsetting contract, in and of itself, does not constitute a market mechanism because the rights and obligations from the original contract survive. The fact that an entity has offset its rights and obligations under an original contract with a new contract does not by itself indicate that its rights and obligations under the original contract have been relieved. This applies to contracts regardless of whether either of the following conditions exists: 1. 1 The asset associated with the underlying is financial or nonfinancial. 2. 2 The offsetting contract is entered into with the same counterparty as the original contract or a different counterparty (unless an offsetting contract with the same counterparty relieves the entity of its rights and obligations under the original contract, in which case the arrangement does constitute a market mechanism). (Example 6 \[see paragraph [815-10-55-91](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-91)\] illustrates this guidance.) 3. c Liquidation of the net position does not require significant transaction costs. For purposes of assessing whether a market mechanism exists, an entity shall consider transaction costs to be significant if they are 10 percent or more of the fair value of the contract. Whether assets deliverable under a group of futures contracts exceeds the amount of assets that could rapidly be absorbed by the market without significantly affecting the price is not relevant to this characteristic. The lack of a liquid market for a group of contracts does not affect the determination of whether there is a market mechanism that facilitates net settlement because the test focuses on a singular contract. An exchange offers a ready opportunity to sell each contract, thereby providing relief of the rights and obligations under each contract. The possible reduction in price due to selling a large futures position is not considered to be a transaction cost. 4. d Liquidation of the net position under the contract occurs without significant negotiation and due diligence and occurs within a time frame that is customary for settlement of the type of contract. A market mechanism facilitates easy and expedient settlement of the contract. As discussed under the primary characteristic in (a), those qualities of a market mechanism do not preclude net settlement in assets other than cash. ##### [815-10-15-112](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-112) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:0945ded0168676e06a357804cd689cafd384ab50a6df178f6cd4a7e05912cb47 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-10-15-113](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-113) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:e9b6d60e9515ca234823f93cab7a9b1d2f1014d026fd054afb429d3c0281bdb4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entities shall consider the indicators in the following paragraph for each of the primary characteristics in determining whether a method of settling a contract qualifies as an established market mechanism. All of the indicators need not be present for an entity to conclude that a market mechanism exists for a particular contract. ##### [815-10-15-114](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-114) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:73d28e79259a7da45574c2943d919a9febe7191af97cf521fff233a9ff765e1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are indicators that the primary characteristic in paragraph [815-10-15-111(a)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-111) is met: 1. a Access to potential counterparties is available regardless of the seller's size or market position. 2. b Risks assumed by a market maker as a result of acquiring a contract can be transferred by a means other than by repackaging the original contract into a different form. ##### [815-10-15-115](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-115) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:82bcea38da2fb91c49c77c19cab56d6b8cdcb426813c00150fae0c1cbbef55ec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are indicators that the primary characteristic in paragraph [815-10-15-111(b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-111) is met: 1. a There are multiple market participants willing and able to enter into a transaction at market prices to assume the seller's rights and obligations under a contract. 2. b There is sufficient liquidity in the market for the contract, as indicated by the transaction volume as well as a relatively narrow observable [bid-ask spread](https://asc.understandingaccounting.org/glossary/b/#bid-ask-spread "A bid-ask spread is the difference between the highest price a buyer will pay to acquire an instrument and the lowest price at which any investor will sell an instrument."). ##### [815-10-15-116](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-116) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:35a70da92668b8d9a945100ff07147d7a43fd124423fd8ede8ccf56d1293a7c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following are indicators that primary characteristic in paragraph [815-10-15-111(d)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-111) is met: 1. a Binding prices for the contract are readily obtainable. 2. b Transfers of the instrument involve standardized documentation (rather than contracts with entity-specific modifications) and standardized settlement procedures. 3. c Individual contract sales do not require significant negotiation and unique structuring. 4. d The closing period is not extensive because of the need to permit legal consultation and document review. ##### [815-10-15-117](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-117) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:685028d3050c5781ec7179da0d3dcb82760f4e898be12cc162a1feb53e24710a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As noted in the primary characteristic in paragraph [815-10-15-111(b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-111), an assessment of the substance of any assignment clause is required to determine whether that assignment clause precludes a party from being relieved of all rights and obligations under the contract. Although permission to assign a contract shall not be unreasonably withheld by the counterparty in accordance with the terms of a contract, an assignment feature cannot be viewed simply as a formality because it may be invoked at any time to prevent the nonassigning party from being exposed to unacceptable credit or performance risk. Accordingly, the existence of an assignment clause may or may not permit a party from being relieved of its rights and obligations under the contract. If it is remote that the counterparty will withhold permission to assign the contract, the mere existence of the clause shall not preclude the contract from possessing the net settlement characteristic described in paragraph [815-10-15-110](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110) as a market mechanism. Such a determination requires assessing whether a sufficient number of acceptable potential assignees exist in the marketplace such that assignment of the contract would not result in imposing unacceptable [credit risk](https://asc.understandingaccounting.org/glossary/c/#credit-risk "For purposes of a hedged item in a fair value hedge, credit risk is the risk of changes in the hedged item's fair value attributable to both of the following: Changes in the obligor's creditworthiness Changes in the spread over the benchmark interest ratewith respect to the hedged item's credit sector at inception of the hedge. For purposes of a hedged transaction in a cash flow hedge, credit risk is the risk of changes in the hedged transaction's cash flows attributable to all of the following: Default Changes in the obligor's creditworthiness Changes in the spread over the contractually specified interest rate or the benchmark interest rate with respect to the related financial asset's or liability's credit sector at inception of the hedge.") or performance risk on the nonassigning party. Consideration shall be given to past counterparty and industry practices regarding whether permission to be relieved of all rights and obligations under similar contracts has previously been withheld. However, if it is reasonably possible or probable that the counterparty will withhold permission to assign the contract, the contract does not possess the net settlement characteristic described in paragraph [815-10-15-110](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110) as a market mechanism. ##### [815-10-15-118](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-118) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:5f94f1c41e5e509ee14716eb6cd5e04080f28acd2c12b35a5105b7f3c2a17241 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The evaluation of whether a market mechanism exists shall be performed at inception and on an ongoing basis throughout a contract's life. Example 4, Case A (see paragraph [815-10-55-86](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-86)) illustrates this guidance. ##### [815-10-15-119](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-119) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:44efc21d8645fa486c7eaf4c7f6202bd059e397d39a7a8876ccb9d16f4cdcc9e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this form of net settlement, one of the parties is required to deliver an asset of the type described in paragraph [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100), but that asset is readily convertible to cash or is itself a derivative instrument. ##### [815-10-15-120](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-120) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:bf5b84519bd7e042ce5f8ce3375e7f3151eaaf52453ea462deba1e50035481bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An example of a contract with this form of net settlement is a forward contract that requires delivery of an exchange-traded equity security. Even though the number of shares to be delivered is the same as the notional amount of the contract and the price of the shares is the underlying, an exchange-traded security is readily convertible to cash. Another example is a swaption—an option to require delivery of a swap contract, which is a derivative instrument. ##### [815-10-15-121](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-121) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:ae91c59f0ddb930b4ba91d89d3e64bbc777d080fa4bc181ea1fbda57c2136c61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of assets that are readily convertible to cash include a security or commodity traded in an active market and a unit of foreign currency that is readily convertible into the functional currency of the reporting entity. ##### [815-10-15-122](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-122) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:6c52796ffc53ec5d1198495b6296fadaa0ae5c65761fa3297d579e01ecc76ed2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An asset (whether financial or nonfinancial) shall be considered to be readily convertible to cash only if the net amount of cash that would be received from a sale of the asset in an active market is either equal to or not significantly less than the amount an entity would typically have received under a net settlement provision. The net amount that would be received upon sale need not be equal to the amount typically received under a net settlement provision. Parties generally should be indifferent as to whether they exchange cash or the assets associated with the underlying, although the term _indifferent_ is not intended to imply an approximate equivalence between net settlement and proceeds from sale in an active market. ##### [815-10-15-123](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-123) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:abf9794eddd30df1394678ffcbb2a0f0050a91bfb80ab988688da312d5fea0f1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The form of a financial instrument is important; individual instruments cannot be combined for evaluation purposes to circumvent compliance with the criteria beginning in paragraph [815-10-15-119](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-119). Example 8 (see paragraph [815-10-55-111](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-111)) illustrates this guidance. ##### [815-10-15-124](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-124) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:bc49a37dd3e17ec1c4cf32e3f4140a65ee65646abdfd48467fce06e262a4b19e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Discussion of additional matters relevant to this form of net settlement is organized as follows: 1. a Effect of conversion costs 2. b Contracts involving multiple deliveries 3. c Asset's suitability as collateral does not equate to asset being readily convertible to cash 4. d Determining whether shares of stock are readily convertible to cash 5. e Ongoing evaluation of readily convertible to cash. ##### [815-10-15-125](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-125) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:a6ed4bea3925b55e6b8b8bb99a1cdc412dc4c9cd132c2e85f7e22f47d1790ee1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity determines that the estimated costs that would be incurred to immediately convert the asset to cash are not significant, then receipt of that asset puts the entity in a position not substantially different from net settlement. Therefore, an entity shall evaluate, in part, the significance of the estimated costs of converting the asset to cash in determining whether those assets are readily convertible to cash. ##### [815-10-15-126](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-126) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:aa6abb114705d20f2838246f5a71f06433e1171c09b24441006be75bf0343141 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of assessing significance of such costs, an entity shall consider those estimated conversion costs to be significant only if they are 10 percent or more of the gross sales proceeds (based on the spot price at the inception of the contract) that would be received from the sale of those assets in the closest or most economical active market. ##### [815-10-15-127](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-127) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:64352e39c818ee48a5fc43f84a7f1d0ebf8c7c3f6e8495213192bfead907d660 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The assessment of the significance of those conversion costs shall be performed only at inception of the contract. ##### [815-10-15-128](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-128) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:a74fd8dcda45fc6864ade4d885c1577234ed13733e8d27e21eb23a87001a4118 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For contracts that involve multiple deliveries of the asset, the phrase _in an active market that can rapidly absorb the quantity held by the entity_ in the definition of _readily convertible to cash_ shall be applied separately to the expected quantity in each delivery. ##### [815-10-15-129](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-129) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:b0b9a3f7e41dd40895f8a3b5ac08eb09dc4689a6272367338e765740cba0b3d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The ability to use a security that is not publicly traded or an agricultural or mineral product without an active market as collateral in a borrowing does not, in and of itself, mean that the security or the commodity is readily convertible to cash. ##### [815-10-15-130](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-130) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:50b1ce25a7d59946c12df84249071fbdf4267daea521cbd09e0cd632a00c6a74 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A security that is publicly traded but for which the market is not very active is readily convertible to cash if the number of shares or other units of the security to be exchanged is small relative to the daily transaction volume. That same security would not be readily convertible if the number of shares to be exchanged is large relative to the daily transaction volume. ##### [815-10-15-131](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-131) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:88c21f3bcc8ad4caa6dbb742e10e8010b6901299e788e79243678b4751294f0f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Shares of stock in a publicly traded entity to be received upon the exercise of a stock purchase warrant do not meet the characteristic of being readily convertible to cash if both of the following conditions exist: 1. a The stock purchase warrant is issued by an entity for only its own stock (or stock of its consolidated subsidiaries). 2. b  The sale or transfer of the issued shares is restricted (other than in connection with being pledged as collateral) for a period of 32 days or more from the date the stock purchase warrant is exercised. ##### [815-10-15-132](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-132) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:154414d95a81d112e5dcf6b15757ff69af7e3c7dd1f9492b387a49578179511e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Restrictions imposed by a stock purchase warrant on the sale or transfer of shares of stock that are received from the exercise of that warrant issued by an entity for other than its own stock (whether those restrictions are for more or less than 32 days) do not affect the determination of whether those shares are readily convertible to cash. The accounting for restricted stock to be received upon exercise of a stock purchase warrant shall not be analogized to any other type of contract. ##### [815-10-15-133](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-133) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:6a5aca783d7121db6a12aa1fea28bfa0925b9ce6a170cfb91f12cf4bac9c10f7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Newly outstanding shares of common stock in a publicly traded company to be received upon exercise of a stock purchase warrant cannot be considered readily convertible to cash if, upon issuance of the shares, the sale or transfer of the shares is restricted (other than in connection with being pledged as collateral) for more than 31 days from the date the stock purchase warrant is exercised (not the date the warrant is issued), unless the holder has the power by contract or otherwise to cause the requirement to be met within 31 days of the date the stock purchase warrant is exercised. ##### [815-10-15-134](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-134) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:9270b260323f50b2dcd1cca4ee89b2ddaa9452d08fe4729f7609e3e32926b4f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast, if the sale of an actively traded security is restricted for 31 days or less from the date the stock purchase warrants are exercised, that limitation is not considered sufficiently significant to serve as an impediment to considering the shares to be received upon exercise of those stock purchase warrants as readily convertible to cash. ##### [815-10-15-135](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-135) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:7f62259d960063dfb1f818498d161751da0c8a01b4e4e1e693ff2149fb7c3ade Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance that a restriction for more than 31 days prevents the shares from being considered readily convertible to cash applies only to stock purchase warrants issued by an entity for its own shares of stock, in which case the shares being issued upon exercise are newly outstanding (including issuance of treasury shares) and are restricted with respect to their sale or transfer for a specified period of time beginning on the date the stock purchase warrant is exercised. ##### [815-10-15-136](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-136) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:72a6f158fcb3beba33cd34d915b959b680e477ed0d17cdd765c4200da2bb4f05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, even if the sale or transfer of the shares is restricted for 31 days or less after the stock purchase warrant is exercised, an entity still must evaluate both of the following criteria: 1. a Whether an active market can rapidly absorb the quantity of stock to be received upon exercise of the warrant without significantly affecting the price 2. b Whether the other estimated costs to convert the stock to cash are expected to be not significant. (The assessment of the significance of those conversion costs shall be performed only at inception of the contract.) Thus, the guidance in paragraph [815-10-15-122](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-122) shall be applied to those stock purchase warrants with sale or transfer restrictions of 31 days or less on the shares of stock. ##### [815-10-15-137](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-137) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:515bd60201978ecec198bd4add5bda254b330a625fa09f527cd7059e0f4ea759 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the shares of an actively traded common stock to be received upon exercise of the stock purchase warrant can be reasonably expected to qualify for sale within 31 days of their receipt, such as may be the case under SEC Rule 144, Selling Restricted and Control Securities, or similar rules of the SEC, any initial sales restriction is not an impediment to considering those shares as _readily convertible to cash_, as that phrase is used in paragraph [815-10-15-119](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-119). (However, a restriction on the sale or transfer of shares of stock that are received from an entity other than the issuer of that stock through the exercise of another option or the settlement of a forward contract is not an impediment to considering those shares readily convertible to cash, regardless of whether the restriction is for a period that is more or less than 32 days from the date of exercise or settlement.) ##### [815-10-15-138](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-138) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:9bac8c7c6f3faa854314bad9ad073a14edf8662507e232248f1d2283677aa1a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-10-15-141](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-141) explains that the guidance in the Certain Contracts on Debt and Equity Securities Subsections applies to those warrants that are not derivative instruments subject to this Topic but that involve the acquisition of securities that will be accounted for under either Topic 320 or Topic 321. However, such warrants are not eligible to be hedging instruments. ##### [815-10-15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-139) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:d8496f29645ac785c1c1e8fec65aaa5e0d56cbfea2375c4003a1babd2e8ef584 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The evaluation of whether items to be delivered under a contract are readily convertible to cash shall be performed at inception and on an ongoing basis throughout a contract's life (except that, as stated in paragraph [815-10-15-127](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-127), the assessment of the significance of those conversion costs shall be performed only at inception of the contract). Example 4, Cases B, C, and D (see paragraphs [815-10-55-87 through 55-89](https://asc.understandingaccounting.org/asc/815/10/#815-10-55-87) ) illustrate this guidance. ### Certain Contracts on Debt and Equity Securities #### Overall Guidance ##### [815-10-15-140](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-140) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:97375d2b6bfa54f9f1005f77e374f36f2f73441530730b199f8143292b70cfbe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the Certain Contracts on Debt and Equity Securities Subsections applies to all entities, with specific instrument qualifications noted below. #### Instruments ##### [815-10-15-141](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-141) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:e4502ae69c56f0e3a7514709b9398d6d662f5d5d12c80c506596c9b779a142f1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the Certain Contracts on Debt and Equity Securities Subsections applies only to those forward contracts and purchased options having all of the following characteristics: 1. a The contract is entered into to purchase securities that will be accounted for under either Topic 320 or Topic 321. 2. b The contract's terms require physical settlement of the contract by delivery of the securities. 3. c The contract is not a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") otherwise subject to this Subtopic. 4. d The contract, if a purchased option, has no intrinsic value at acquisition. ##### [815-10-15-141A](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-141A) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:228ad0763151036868f8e2515222b4ea3476efc4660085092defb6b5ead0b44a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the purposes of applying paragraph [815-10-15-141(a)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-141) for forward contracts and purchased options, an entity shall not consider whether, upon the settlement of the forward contract or the exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under either of the following: 1. a The equity method in accordance with Topic 323 2. b The fair value option in accordance with Topic 825 if those securities otherwise would have been accounted for under Topic 323. ##### [815-10-15-142](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-142) Pending content: no Source downloaded (UTC): 2026-09-10T01:35:00.242Z to 2026-09-10T01:35:00.242Z Record version: sha256:54524a62b570a6217a9a3164c2273e80409d5ae21f2f72b4c2457453a74ecf8f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the Certain Contracts on Debt and Equity Securities Subsections does not apply to contracts involving securities not within the scope of either Topic 320 or Topic 321, after considering the guidance in paragraph [815-10-15-141A](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-141A).