# ASC 815-15-05: Derivatives and Hedging — Embedded Derivatives — 05 Overview and Background

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/815/15/#05-overview-and-background)

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): 2026-09-10T01:35:59.276Z to 2026-09-10T01:35:59.276Z

Record version: sha256:9ddbc2e219fa5d29b3db4ff8cda6adea5aae675aa1bb84562832a6d49ebe9c8c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


## ASC 815-15-05: 05 Overview and Background

[Read section](https://asc.understandingaccounting.org/asc/815/15/#05-overview-and-background)

SEC content: no

##### [815-15-05-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-05-1)

Pending content: no

Source downloaded (UTC): 2026-09-10T01:35:59.276Z to 2026-09-10T01:35:59.276Z

Record version: sha256:4316f61cff3486466dd2c319d006fc3ee191be80855578c54dc321f9ec9a1e86

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Contracts that do not in their entirety meet 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 paragraphs

[815-10-15-83 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83)

), such as bonds, insurance policies, and leases, may contain [embedded derivatives](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."). 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 [underlyings](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.").