{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/815/15/#05-overview-and-background","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"815","topic_title":"Derivatives and Hedging","subtopic":"815-15","subtopic_title":"Embedded Derivatives","section":{"number":"05","label":"05 Overview and Background","anchor":"05-overview-and-background","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"815-15-05-1","para":"05-1","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_9DB64BF7-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Contracts that do not in their entirety meet the definition of a <a href=\"/glossary/d/#derivative-instrument\" class=\"term\" title=\"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.\"><span>derivative instrument</span></a> (see paragraphs <div class=\"xref-range displayInline\"><a href=\"/asc/815/10/#815-10-15-83\" class=\"xref\">815-10-15-83 through 15-139</a></div>), such as bonds, insurance policies, and leases, may contain <a href=\"/glossary/e/#embedded-derivative\" class=\"term\" title=\"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.\"><span>embedded derivatives</span></a>. </span></span> <span class=\"sfragment\" id=\"sfr_9DB64D48-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The effect of embedding a derivative instrument in another type of contract (the host contract) is that some or all of the cash flows or other exchanges that otherwise would be required by the host contract, whether unconditional or contingent on the occurrence of a specified event, will be modified based on one or more <a href=\"/glossary/u/#underlying\" class=\"term\" title=\"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.\"><span>underlyings</span></a>. </span></span> </div> </div>","snippet":"Contracts that do not in their entirety meet the definition of a derivative instrument (see paragraphs 815-10-15-83 through 15-139), such as bonds, insurance policies, and leases, may contain embedded derivatives. 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