{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/815/15/#55-implementation-guidance-and-illustrations","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":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Implementation Guidance","paragraphs":[{"citation":"815-15-55-1","para":"55-1","html":"
Insurance contracts that provide coverage for various types of property and casualty exposure are commonly executed between U.S.-based insurance entities and multinational corporations that have operations in foreign countries. The contracts may be structured to provide for payment of claims in the functional currency of the insurer or in the functional currency of the entity experiencing the loss and will typically specify the exchange rate to be utilized in calculating loss payments.
","snippet":"Insurance contracts that provide coverage for various types of property and casualty exposure are commonly executed between U.S.-based insurance entities and multinational corporations that have operations in foreign cou…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bf17ad9a1bfdf272d5b4452df34bccb60b9ae6b7e852bc42b3e9e10d1903375b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-2","para":"55-2","html":"
Consider a contract that provides for the payment of losses in U.S. dollars (that is, the functional currency of the insurer). Losses are reported to the insurance entity in the functional currency of the entity experiencing the loss, but losses are paid by the insurer in U.S. dollars. From the perspective of the insurer, the contract terms may provide that the rate of exchange to be used to convert the losses from the functional currency of the foreign entity to the U.S. dollar for purposes of claim payments be one of the following:
  1. a
    The rate of exchange as of the settlement date (payment date) of the claim
  2. b
    The rate of exchange as of the loss occurrence date
  3. c
    The rate of exchange at inception of the contract.
The contract described in this guidance does not qualify as traditional insurance under paragraph 815-10-15-53(b) because it contains a foreign currency element.
","snippet":"Consider a contract that provides for the payment of losses in U.S. dollars (that is, the functional currency of the insurer). Losses are reported to the insurance entity in the functional currency of the entity experien…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:dd135cba7a03693e4fc964b3419a9ae85ff45c323d46caef2f1615d91ae50632","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-3","para":"55-3","html":"
Because the insurance entity does not record a claim liability in accordance with Subtopic 944-40 until losses are incurred, no foreign-currency-denominated liability exists (that would otherwise be subject to Subtopic 830-20, as contemplated by paragraph 815-15-15-10) during the period between the inception of the insurance contract and the loss occurrence date.
","snippet":"Because the insurance entity does not record a claim liability in accordance with Subtopic 944-40 until losses are incurred, no foreign-currency-denominated liability exists (that would otherwise be subject to Subtopic 8…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:50136f49e6c5daeada0a87e6d46dfbe32858d9b18a6d9420439edf832a49b071","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-4","para":"55-4","html":"
Insurance contracts are financial instruments that are not covered by the scope exception in paragraph 815-15-15-10 that applies to nonfinancial contracts; however, that paragraph applies to this situation in which a normal insurance contract involves payment in the functional currency of either of the two parties to the contract. The insurance contracts described in this guidance are covered by the exception in paragraph 815-15-15-10, because the insurance contracts do not give rise to a recognized asset or liability that would be measured under Subtopic 830-20 until an amount becomes receivable or payable under the contract. Therefore, as discussed in paragraph 815-15-15-20, the exception in paragraph 815-15-15-10 also applies to insurance contracts that involve payment of losses in the functional currency of either of the two parties to the contract.
","snippet":"Insurance contracts are financial instruments that are not covered by the scope exception in paragraph 815-15-15-10 that applies to nonfinancial contracts; however, that paragraph applies to this situation in which a nor…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9c55a02fe7659254e25ef37ee0652a626669c0a7579e49e5452a9fa97f6af563","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-5","para":"55-5","html":"
The following guidance addresses application of one or more of the bifurcation criteria in paragraph 815-15-25-1.
","snippet":"The following guidance addresses application of one or more of the bifurcation criteria in paragraph 815-15-25-1.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4ffd396e9143582456f70ff7b178f9a2d83c469f26168f252ead250ee2da264e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-6","para":"55-6","html":"
The following guidance addresses application of the separate instrument criterion in paragraph 815-15-25-1(c).
","snippet":"The following guidance addresses application of the separate instrument criterion in paragraph 815-15-25-1(c).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c8c3f80bc9e15e7ae3092025b97485c40e9fd434368cdd54627bb3c7ab534044","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-7","para":"55-7","html":"
Lease contracts that include variable lease payments based on certain sales of the lessee would not have the embedded derivative that is related to the variable lease payment separated from the host contract because, under paragraph 815-10-15-59(d), a non-exchange-traded contract whose underlying is specified volumes of sales by one of the parties to the contract would not be subject to the requirements of Subtopic 815-10.
","snippet":"Lease contracts that include variable lease payments based on certain sales of the lessee would not have the embedded derivative that is related to the variable lease payment separated from the host contract because, und…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7664b12c2007e13ec408aab5599e0e1be68be01b88ab2c4d6c78a88da0cda6ab","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-8","para":"55-8","html":"
Under an example participating mortgage, the investor receives a below-market interest rate and is entitled to participate in the appreciation in the fair value of the project that is financed by the mortgage upon sale of the project, at a deemed sale date, or at the maturity or refinancing of the loan. The mortgagor must continue to own the project over the term of the mortgage.
","snippet":"Under an example participating mortgage, the investor receives a below-market interest rate and is entitled to participate in the appreciation in the fair value of the project that is financed by the mortgage upon sale o…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e97618a5801a5f7fb53ceb15d1c61874c9b193531762146a85bd6e7242d723fb","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-9","para":"55-9","html":"
This instrument has a provision that entitles the investor to participate in the appreciation of the referenced real estate (the project). However, a separate contract with the same terms would be excluded by the exception in paragraph 815-10-15-59(b) because settlement is based on the value of a nonfinancial asset of one of the parties that is not readily convertible to cash. (This Subtopic does not modify the guidance in Subtopic 470-30.)
","snippet":"This instrument has a provision that entitles the investor to participate in the appreciation of the referenced real estate (the project). However, a separate contract with the same terms would be excluded by the excepti…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e5fe695575494e0f67f85223cd48b396515401e3fb12a68cbf9eb4d8b2498c81","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-10","para":"55-10","html":"
Paragraph 310-10-05-9 explains that loans granted to acquire operating properties sometimes grant the lender a right to participate in expected residual profit from the sale or refinancing of the property. An equity kicker (or expected residual profit) would typically not be separated from the host contract and accounted for as an embedded derivative because paragraph 815-15-25-1(c) exempts a hybrid contract from bifurcation if a separate instrument with the same terms as the embedded equity kicker is not a derivative instrument subject to the requirements of this Subtopic. Under paragraph 815-10-15-59(b), an embedded equity kicker would typically not be subject to the requirements of this Subtopic because the separate instrument with the same terms is not exchange traded and is indexed to nonfinancial assets that are not readily convertible to cash. Similarly, if an equity kicker is based on a share in net earnings or operating cash flows, it would also typically qualify for the scope exception in paragraph 815-10-15-59(d). If the embedded derivative does not need to be accounted for separately under this Subtopic, the Acquisition, Development, and Construction Arrangements Subsections of Subtopic 310-10 shall be applied.
","snippet":"Paragraph 310-10-05-9 explains that loans granted to acquire operating properties sometimes grant the lender a right to participate in expected residual profit from the sale or refinancing of the property. An equity kick…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4f3dd27afc143b116eec4f80d39da9bc4ef452147354562b94bf42871d31aa0c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-11","para":"55-11","html":"
A loan with an equity kicker of more than 50 percent of net earnings that is considered to be an investment in real estate under the Acquisition, Development, and Construction Arrangements Subsections of Subtopic 310-10 would not be analyzed under this Subtopic as a host loan contract and an embedded equity kicker derivative.
","snippet":"A loan with an equity kicker of more than 50 percent of net earnings that is considered to be an investment in real estate under the Acquisition, Development, and Construction Arrangements Subsections of Subtopic 310-10 …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c326e33ce33c018e2dff9f6e93dbbe663e00758ca20404c19391478e96a4055c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-12","para":"55-12","html":"
Paragraphs
815-10-55-37 through 55-39
provide guidance on dual-trigger insurance contracts and whether such a contract, in its entirety, is a derivative instrument subject to the requirements of Subtopic 815-10. If a contract issued by an insurance entity involves essentially assured amounts of cash flows based on insurable events that are highly probable of occurrence (as discussed in paragraph 815-10-15-55(c)), an embedded derivative related to changes in the separate pre-identified variable for that portion of the contract would be required to be separately accounted for as a derivative instrument.
","snippet":"Paragraphs 815-10-55-37 through 55-39 provide guidance on dual-trigger insurance contracts and whether such a contract, in its entirety, is a derivative instrument subject to the requirements of Subtopic 815-10. If a con…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c5f7395eb0a11f59288df9a394c5ddb9279efc6540c350865ac2b44d1c547566","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-13","para":"55-13","html":"
The following table demonstrates the application of the four-step decision sequence in paragraph 815-15-25-42 for determining whether call options and put options that can accelerate the settlement of debt instruments should be considered to be clearly and closely related to the debt host contract under the criterion in paragraph 815-15-25-1(a).
","snippet":"The following table demonstrates the application of the four-step decision sequence in paragraph 815-15-25-42 for determining whether call options and put options that can accelerate the settlement of debt instruments sh…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:443431cacae8d1fe64e2a30055442d054fb08fd7c17f6fc586b4b26b4da271a8","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-14","para":"55-14","html":"
The following guidance addresses application of the bifurcation criteria in paragraph 815-15-25-1 to various transactions and is organized as follows:
  1. a
    Volumetric production payments
  2. b
    Interest-rate-related underlyings—call options that are exercisable only by the debtor
  3. c
    Remarketable put bonds
  4. d
    Variable annuity products in general
  5. e
    Payment alternatives for variable annuity contracts
  6. f
    Equity-indexed annuity contracts
  7. g
    Equity-indexed life insurance contracts.
","snippet":"The following guidance addresses application of the bifurcation criteria in paragraph 815-15-25-1 to various transactions and is organized as follows:\n(a) Volumetric production payments\n(b) Interest-rate-related underlyi…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4e28e90ef605a8e70b45906edbe532d0eac74d54e7da7588d61794be76162abd","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-15","para":"55-15","html":"
The embedded derivative provisions of this Subtopic apply to the accounting by all parties for a volumetric production payment (see paragraph 932-360-55-2) for which the quantity of the commodity that will be delivered is reliably determinable.
","snippet":"The embedded derivative provisions of this Subtopic apply to the accounting by all parties for a volumetric production payment (see paragraph 932-360-55-2) for which the quantity of the commodity that will be delivered i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:217911da2c638113e7647b76c99db1fc18bf3a6298a5024b7ae754a919fd7925","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-16","para":"55-16","html":"
A volumetric production payment is not itself a standalone derivative instrument because, like the contract in paragraphs
815-10-55-74 through 55-76
, it does not have the characteristic of a derivative instrument discussed in paragraph 815-10-15-83(b)—that is, a smaller or no initial net investment.
","snippet":"A volumetric production payment is not itself a standalone derivative instrument because, like the contract in paragraphs 815-10-55-74 through 55-76, it does not have the characteristic of a derivative instrument discuss…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:90d4cbfe647de9bec50c8cb8cc6e78fafedee60ddf0fbc041b3e529d4bbf1a35","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-17","para":"55-17","html":"
Although it is not derivative instrument, a volumetric production payment shall be analyzed under paragraph 815-15-25-1. That analysis would typically indicate that such a volumetric production payment effectively is a hybrid instrument composed of a host debt instrument embedded with a commodity forward contract.
","snippet":"Although it is not derivative instrument, a volumetric production payment shall be analyzed under paragraph 815-15-25-1. That analysis would typically indicate that such a volumetric production payment effectively is a h…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f491b10e803933c104e19f01a2fb8dcd82c9a6d5c91c6c884c1173a54c6849fb","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-18","para":"55-18","html":"
The criterion in paragraph 815-15-25-1(b) is met because a volumetric production payment is not remeasured at fair value under otherwise applicable generally accepted accounting principles (GAAP) with changes in fair value reported currently in earnings.
","snippet":"The criterion in paragraph 815-15-25-1(b) is met because a volumetric production payment is not remeasured at fair value under otherwise applicable generally accepted accounting principles (GAAP) with changes in fair val…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c9d958992436e266271394ad616b9f3a5a099d54551ef83a976baf917716e3cc","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-19","para":"55-19","html":"
The embedded commodity forward contract meets the criterion in paragraph 815-15-25-1(a) because commodity prices are not clearly and closely related to interest rates on the debt host contract.
","snippet":"The embedded commodity forward contract meets the criterion in paragraph 815-15-25-1(a) because commodity prices are not clearly and closely related to interest rates on the debt host contract.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:263f69bb4631fc11b09c90f893b197909e95a64a77d86e20771c58650f5d3c3c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-20","para":"55-20","html":"
Accordingly, if a separate instrument with the same terms as the commodity forward contract would be a derivative instrument subject to the requirements of this Subtopic, the embedded commodity forward contract would meet the criterion in paragraph 815-15-25-1(c) and shall be accounted for separately. (Note that Section 815-15-25 allows for a fair value election for hybrid financial instruments that otherwise would require bifurcation. However, Section 815-15-25 does not apply to hybrid instruments that are not financial instruments, such as nonfinancial instruments that require volumetric production payments.)
","snippet":"Accordingly, if a separate instrument with the same terms as the commodity forward contract would be a derivative instrument subject to the requirements of this Subtopic, the embedded commodity forward contract would mee…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:66b47ab4259187e4b2d8fc82f89cb1aa15ef2933a5c4de49c513b16c1bdefe61","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-21","para":"55-21","html":"
However, the embedded commodity forward contract may nevertheless be eligible to qualify for the normal purchases and normal sales exception as discussed beginning in paragraph 815-10-15-22 and, if so, would not be subject to the accounting requirements of Subtopic 815-10 for the party to whom it is a normal purchase or a normal sale. If it were a normal sale for an oil- or gas-producing entity, the entire related volumetric production payment would be accounted for under Topic 932.
","snippet":"However, the embedded commodity forward contract may nevertheless be eligible to qualify for the normal purchases and normal sales exception as discussed beginning in paragraph 815-10-15-22 and, if so, would not be subje…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d9e539bbdddd3e07283acc0363bfbf39aa34b11d8cb8dbd188e5de20244809d4","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-22","para":"55-22","html":"
If the embedded commodity forward contract does not qualify for the normal purchases and normal sales exception, it may qualify for designation as the hedging instrument in an all-in-one hedge, as discussed in paragraph 815-20-25-22.
","snippet":"If the embedded commodity forward contract does not qualify for the normal purchases and normal sales exception, it may qualify for designation as the hedging instrument in an all-in-one hedge, as discussed in paragraph …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:201cda2c58b630f814726f458e86382e992579fbeecd0a5befbd606388fa798e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-23","para":"55-23","html":"
If the quantity of the commodity that will be delivered under a volumetric production payment arrangement is not reliably determinable, the embedded commodity forward contracts in such volumetric production payment arrangements are considered not to contain a notional amount as that term is used in Subtopic 815-10. Such a circumstance can occur when the oil or gas volumetric production payments relate to the production of a single well (or relatively unproven properties) and the volume under the contract is relatively large, and thereby involve significant reserve risk with respect to the receipt of the entire quantity specified in the contract.
","snippet":"If the quantity of the commodity that will be delivered under a volumetric production payment arrangement is not reliably determinable, the embedded commodity forward contracts in such volumetric production payment arran…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0352b972a4e36d0c6533f89aa71d3349e86d39213b4037f41fbe076b23d44831","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-24","para":"55-24","html":"
If the embedded commodity forward contract is not subject to the requirements of Subtopic 815-10, the entire related volumetric production payment would be accounted for under Topic 932.
","snippet":"If the embedded commodity forward contract is not subject to the requirements of Subtopic 815-10, the entire related volumetric production payment would be accounted for under Topic 932.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cd65951cf8c893b833f970992081cf24d3f3c5c6762540bd052dba91747073fc","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-25","para":"55-25","html":"
Application of the guidance in paragraphs
815-15-25-37 through 25-39
to specific debt instruments is provided in the following table.
","snippet":"Application of the guidance in paragraphs 815-15-25-37 through 25-39 to specific debt instruments is provided in the following table.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6dace0ee33c9425c888b116377a433ee8ea7ce88288be7f3f7a8d1ef470c9c11","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-26","para":"55-26","html":"
The following guidance discusses remarketable put bond structures involving three parties—a debtor, an investor (creditor), and an investment bank—and the required accounting by the debtor and the investor for each of the features discussed.
","snippet":"The following guidance discusses remarketable put bond structures involving three parties—a debtor, an investor (creditor), and an investment bank—and the required accounting by the debtor and the investor for each of th…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2cd8e4850eb4910c04482a26a7d3bf61a1e6619ee06e85f9197b33bfffdf46da","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-27","para":"55-27","html":"
A standard put bond has all of the following characteristics:
  1. a
    A debtor issues a contract comprising a bond and a written put option.
  2. b
    The option allows the investor to put the bond back to the debtor at a specific date in exchange for the bond's par value.
  3. c
    In exchange for giving the investor the right to redeem the bond at par before maturity, the debtor pays a lower effective interest rate than would be demanded for a nonputtable bond.
","snippet":"A standard put bond has all of the following characteristics:\n(a) A debtor issues a contract comprising a bond and a written put option.\n(b) The option allows the investor to put the bond back to the debtor at a specific…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:31bac78551c99f18f4e82a924310a3c27e35930f6fc6602aba698ec4b43d2ed1","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-28","para":"55-28","html":"
In addition, the rate on the bond may reset at the put date (resettable put bonds), and the bond may also involve a call option (callable, resettable put bonds).
","snippet":"In addition, the rate on the bond may reset at the put date (resettable put bonds), and the bond may also involve a call option (callable, resettable put bonds).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4b1c1d7ab202d1f65e9903bb09fb95bf9c911fb1542c3923b71cef1b47d3eb47","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-29","para":"55-29","html":"
A remarketable put bond is a puttable bond that generally has the following additional features:
  1. a
    An investment bank obtains a call option—a right to buy the bond from the investor on the put date for the par amount.
  2. b
    The investment bank usually is either the underwriter of the bond issuance or an affiliate of the underwriter.
  3. c
    The bond will automatically be put back to the debtor if the investment bank does not exercise its call option to purchase the bond.
  4. d
    The strike prices and the exercise dates of the investor's written call option and purchased put option are the same.
  5. e
    The exercise dates are before the stated maturity of the bond.
  6. f
    The bond has an interest-rate-reset feature under which, if the bond is not put, the bond's contractual interest rate for the remaining term to maturity will reset at the put date based on the sum of the following:
    1. 1
      The yield, at the issuance date of the puttable bond, of U.S. Treasury bonds of the same remaining maturity as the bond
    2. 2
      The debtor's credit spread as of the put date.
  7. g
    The proceeds from issuance exceed the par amount of the bond, net of issuance costs.
","snippet":"A remarketable put bond is a puttable bond that generally has the following additional features:\n(a) An investment bank obtains a call option—a right to buy the bond from the investor on the put date for the par amount.\n…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:63ab76afe7a597b0fb7a4a426121073ff2f4b7563b0a13829ae263f19952cca6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-30","para":"55-30","html":"
It is assumed for purposes of this discussion that the interest-rate-reset feature does not trigger the condition in paragraph 815-15-25-26(a). The premium over par compensates the debtor for the interest-rate-reset feature. The premium generally is less than 10 percent of the par amount.
","snippet":"It is assumed for purposes of this discussion that the interest-rate-reset feature does not trigger the condition in paragraph 815-15-25-26(a). The premium over par compensates the debtor for the interest-rate-reset feat…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b3b70b1d3ca2424aab5162383ba625c4e3c40e2474a71a8add8be38bf0ce9599","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-31","para":"55-31","html":"
Economically, one of two scenarios will occur:
  1. a
    If market interest rates increase, both of the following will occur:
    1. 1
      The fair value of the bond (absent the effect of the put option) will decrease.
    2. 2
      The put option is in the money; therefore, the investors will put the bonds to the debtor.
  2. b
    If market interest rates decrease, both of the following will occur:
    1. 1
      The fair value of the bond (absent the effect of the call option) will increase.
    2. 2
      The call option is in the money; therefore, the investment bank will call the bonds from investors and resell the repriced bonds in the market at a premium.
","snippet":"Economically, one of two scenarios will occur:\n(a) If market interest rates increase, both of the following will occur:\n(1) The fair value of the bond (absent the effect of the put option) will decrease.\n(2) The put opti…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5c7ac0d3859056ee786bcfeda4793c73d14330494b63f7613100bbb07c01268d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-32","para":"55-32","html":"
The following guidance describes six remarketable put bond structures and three additional features that may accompany certain structures.
","snippet":"The following guidance describes six remarketable put bond structures and three additional features that may accompany certain structures.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5cfc0f2b804b8d2d84d3e1edff189ba7d9696b524324fe5726f40e8477129f80","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-33","para":"55-33","html":"
Structure 1 has all of the following features:
  1. a
    A debtor issues a resettable, puttable bond to an investment bank.
  2. b
    The investment bank sells to an investor that resettable, puttable bond with an attached call option.
  3. c
    The attached call option is a written option from the perspective of the investor and a purchased option from the perspective of the investment bank.
","snippet":"Structure 1 has all of the following features:\n(a) A debtor issues a resettable, puttable bond to an investment bank.\n(b) The investment bank sells to an investor that resettable, puttable bond with an attached call opti…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9edf1766890e2fe5f2b755cb75c457b75d32db5d4ff3bafacb0da6a08a529755","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-34","para":"55-34","html":"
That is, the investor buys a resettable, puttable bond and simultaneously writes a call option giving the investment bank the right to call the bond and take advantage of the interest-rate-reset feature.
","snippet":"That is, the investor buys a resettable, puttable bond and simultaneously writes a call option giving the investment bank the right to call the bond and take advantage of the interest-rate-reset feature.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:374e98845a9446f6e039d8a2d0679a49dd8a8a50dbc04fc9683f53241a010889","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-35","para":"55-35","html":"
Structure 1 is analyzed as follows:
  1. a
    Investment bank's held call option. The debtor should not account for the call option purchased by the investment bank from the investor. The debtor is not a party to the call option. The investor's accounting for Structure 1 is addressed in Example 1, Case A (see paragraph 815-10-55-67), which requires that an option that is added to a debt instrument by a third party contemporaneously with or after the issuance of the debt instrument be separately accounted for as a derivative instrument by the investor. That is, it shall be reported at fair value with changes in value recognized currently in earnings. The investment bank shall also account for a freestanding purchased call option.
  2. b
    Investor's written call option. The carrying value of the investor's attached freestanding written call option to the investment bank should be its fair value in accordance with paragraphs 815-10-30-1 and 815-10-35-1. The remaining proceeds would be allocated to the carrying amount of the puttable bond.
  3. c
    Investor's held put option. Neither the debtor nor the investor is required to account separately for the embedded put option written by the debtor to the investor. Under paragraphs
    815-15-25-41 through 25-43
    , the put option is considered clearly and closely related to the economic characteristics of the bond because it simply accelerates the repayment of principal, involves no substantial premium or discount, and is not contingent.
","snippet":"Structure 1 is analyzed as follows:\n(a) Investment bank's held call option. The debtor should not account for the call option purchased by the investment bank from the investor. The debtor is not a party to the call opti…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:934c55239eb94229dfde1f765a8623863d75b503fb90b17ef3064514069a32b6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-36","para":"55-36","html":"
Structure 2 has all of the following features:
  1. a
    A debtor issues a resettable, puttable bond to an investor.
  2. b
    Contemporaneously, the investor writes a freestanding call option that permits the debtor to call the bond on the put date.
  3. c
    The debtor immediately sells the purchased call option to an investment bank.
","snippet":"Structure 2 has all of the following features:\n(a) A debtor issues a resettable, puttable bond to an investor.\n(b) Contemporaneously, the investor writes a freestanding call option that permits the debtor to call the bon…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c618c0507bf5b2a7b5d24aa0a4750b5066d9b2627cefd084dd122925624c83a0","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-37","para":"55-37","html":"
Structure 2 is analyzed as follows:
  1. a
    Investment bank's held call option. The debtor should not account separately for the call option that is purchased from the investor after it is transferred to the investment bank. The debtor is no longer a party to the call option. The investor's accounting for Structure 2 is addressed in Example 1, Case B (see paragraph 815-10-55-70), which indicates that the investor's written call option is a separate freestanding derivative instrument that shall be reported at fair value with changes in value recognized currently in earnings. The investment bank shall also account for a freestanding purchased call option.
  2. b
    Investor's written call option. The carrying value of the investor's freestanding written call option to the investment bank should be its fair value in accordance with paragraphs 815-10-30-1 and 815-10-35-1. The remaining proceeds would be allocated to the carrying amount of the puttable bond.
  3. c
    Investor's held put option. Neither the debtor nor the investor is required to account separately for the embedded put option written by the debtor to the investor. Under paragraphs
    815-15-25-41 through 25-43
    , the put option is considered clearly and closely related to the economic characteristics of the bond because it simply accelerates the repayment of principal, involves no substantial premium or discount, and is not contingent.
","snippet":"Structure 2 is analyzed as follows:\n(a) Investment bank's held call option. The debtor should not account separately for the call option that is purchased from the investor after it is transferred to the investment bank.…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4a6a92d56a2ba7428c12625beb162828a1f4ae272c93418f8d6cbe56bd846f4b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-38","para":"55-38","html":"
Structure 3 has all of the following features:
  1. a
    A debtor issues a resettable bond to an investor.
  2. b
    The bond is puttable by the investor and callable by the debtor.
  3. c
    The terms of the agreement stipulate that if the debtor does not exercise its purchased call option, the investor's purchased put option is automatically exercised.
  4. d
    Contemporaneously, the debtor writes a separate, freestanding call option to an investment bank giving the investment bank the right to require the debtor to call the bond from the investor and deliver the bond to the investment bank.
  5. e
    To deliver the bond to the investment bank, the debtor must obtain the bond from the investor pursuant to either its purchased call option or its written put option.
  6. f
    The debtor has a resulting obligation to make the investment bank whole if it fails to deliver the bond, and the investment bank has no right to pursue the investor if the investor fails to deliver the bond to the debtor.
","snippet":"Structure 3 has all of the following features:\n(a) A debtor issues a resettable bond to an investor.\n(b) The bond is puttable by the investor and callable by the debtor.\n(c) The terms of the agreement stipulate that if t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4570606175e102e8e86be60ba4e3ecf644fa9e50481dc0027f72cdf9924b4eaa","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-39","para":"55-39","html":"
Structure 3 is analyzed as follows:
  1. a
    Investment bank's held call option. The debtor shall account separately for the freestanding call option written to the investment bank, and the investment bank shall account for a freestanding purchased call option, in accordance with the guidance for a derivative instrument in Subtopic 815-10. The investor is not a party to that freestanding written call option and therefore should not account for that option. In addition to the freestanding call option held by the investment bank, Structure 3 also involves an embedded call option written by the investor to the debtor. That embedded call option is not required to be accounted for separately by either the debtor or the investor. Under paragraphs
    815-15-25-41 through 25-43
    , that embedded call option is considered clearly and closely related to the economic characteristics of the bond.     Consistent with the guidance in paragraph 815-20-25-43(c)(7), the debtor may not designate its freestanding call option written to the investment bank as a hedge of its embedded call option purchased from the investor. Because the terms of the contractual agreement require the debtor to settle its obligation to the investor on the embedded options' exercise date, that exercise date is essentially the bond's actual maturity date. Thus, in this structure, there is no embedded option in the bond that would qualify as the hedged item in a fair value hedge in which the hedging instrument is the debtor's freestanding written call option to the investment bank. However, the debtor may designate its freestanding written call option as a hedge of another asset or liability provided that all applicable requirements, including those in paragraph 815-20-25-94, are met.
  2. b
    Investor's held put option. Neither the debtor nor the investor is required to account separately for the embedded put option written by the debtor to the investor. Under paragraphs
    815-15-25-41 through 25-43
    , the put option is considered clearly and closely related to the economic characteristics of the bond because it simply accelerates the repayment of principal, involves no substantial premium or discount, and is not contingent.
","snippet":"Structure 3 is analyzed as follows:\n(a) Investment bank's held call option. The debtor shall account separately for the freestanding call option written to the investment bank, and the investment bank shall account for a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fe4611f38a61d0ae09d62c84aaf39f13a337851e65a06d51535bb909e18c5d51","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-40","para":"55-40","html":"
Structure 4 has all of the following features:
  1. a
    A debtor issues resettable, puttable bonds to a trust.
  2. b
    The trust issues beneficial interests that mature on the put date.
  3. c
    The trust also writes a call option to an investment bank giving the investment bank the right to call the bonds on the put date.
","snippet":"Structure 4 has all of the following features:\n(a) A debtor issues resettable, puttable bonds to a trust.\n(b) The trust issues beneficial interests that mature on the put date.\n(c) The trust also writes a call option to …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5638f97adcfecd84e6e84e6e1eaa40ae1d9eedd7e1f4a0bf2e0706a8fdbc034b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-41","para":"55-41","html":"
If market interest rates fall, the investment bank will call the bonds and the trust will pay the call option proceeds (the par amount) to investors to settle the maturing beneficial interests.
","snippet":"If market interest rates fall, the investment bank will call the bonds and the trust will pay the call option proceeds (the par amount) to investors to settle the maturing beneficial interests.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1476c0ff3159f88d8712aedf430c4009db6d21a8d992f5ba1061001855d2a1d8","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-42","para":"55-42","html":"
If market interest rates increase, the trust will put the bonds back to the debtor and will pay the put option proceeds (the par amount) to investors to settle the maturing beneficial interests.
","snippet":"If market interest rates increase, the trust will put the bonds back to the debtor and will pay the put option proceeds (the par amount) to investors to settle the maturing beneficial interests.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:df155b86e34f6f73c6c48bdbee731551c6f2cbf2eda58154aab1106af239f059","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-43","para":"55-43","html":"
Structure 4 is analyzed as follows:
  1. a
    Investment bank's held call option. Neither the debtor nor the investor should account for the call option purchased by the investment bank from the trust because neither is a party to that call option. (However, if either the debtor or the investor is required to consolidate the trust, that consolidation will require recognition of the call option written by the trust to the investment bank.) The investment bank shall account for a freestanding purchased call option.
  2. b
    Investor's held put option. Neither the debtor nor the investor should account separately for the embedded put option written by the debtor to the trust. From the debtor's perspective, the put option is considered clearly and closely related to the economic characteristics of the bond under paragraphs
    815-15-25-41 through 25-43
    because it simply accelerates the repayment of principal, involves no substantial premium or discount, and is not contingent. The investor is not a party to the embedded put option; rather, the investor simply purchased beneficial interests that mature on the put date.
","snippet":"Structure 4 is analyzed as follows:\n(a) Investment bank's held call option. Neither the debtor nor the investor should account for the call option purchased by the investment bank from the trust because neither is a part…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a10756c15ccdfa4d376d9ed4440b967631817059639b0cafcc467417e39c7a32","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-44","para":"55-44","html":"
Structure 5 has all of the following characteristics:
  1. a
    A debtor issues to an investor a bond that is both puttable (by the investor) and callable (by the holder of the option).
  2. b
    As part of the transaction, the investment bank acquires the exclusive right to purchase the bond from the investor in the future and to remarket the repriced bond.
  3. c
    The investment bank's right to purchase the bond from the investor is set forth in the note or the indenture itself and in a separate document (a remarketing agreement) that is not part of the indenture, and is also described in the prospectus supplement.
  4. d
    The explicit inclusion in the indenture of the investment bank's right to purchase the bond is designed to obligate initial and future investors to deliver the bond in response to the investment bank's exercise of its right.
  5. e
    When the bond is issued, the trustee, in conformity with the transaction documents, shall view the investment bank as the only party with a right to call the bond from the investor at the call-put date. Thus, the trustee does not require any involvement by the debtor when enforcing the investment bank's right to purchase the bond from the investor.
  6. f
    The debtor's only remaining obligation is to pay interest at the reset rate if the bond remains outstanding.
","snippet":"Structure 5 has all of the following characteristics:\n(a) A debtor issues to an investor a bond that is both puttable (by the investor) and callable (by the holder of the option).\n(b) As part of the transaction, the inve…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c8a29521d3a6a85dc8ed2a9f66bc3db69b3f2bea7a06bde2d0ad044a80d79154","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-45","para":"55-45","html":"
Structure 5 is analyzed as follows:
  1. a
    Investment bank's held call option. The debtor should not account separately for the call option held by the investment bank. For accounting purposes, the transaction should be viewed as a purchase of a transferable, freestanding call option by the debtor from the investor and a concurrent transfer by the debtor of that option to the investment bank. Upon that transfer, the debtor is no longer a party to the call option and has surrendered its right to prepay the debt. The investment bank acquired the debtor's right to call the bond and relieved the debtor of the obligation to pay the investor the par amount of the bond upon exercise of the call option. The call option is a contract between the investment bank and the investor that permits the investment bank to purchase the bonds from the investor at par. From the investor's perspective, that contract is a freestanding written call option that shall be accounted for in accordance with paragraphs 815-10-25-1, 815-10-30-1, and
    815-10-35-1 through 35-2
    . That is consistent with the guidance in paragraph 815-10-15-7—an option on a bond incorporated into the terms of the bond at inception that, by the terms of the agreement, is exercisable by a party other than either the debtor or the investor should be considered an attached freestanding derivative instrument. The investment bank shall also account for a freestanding purchased call option.
  2. b
    Investor's written call option. The carrying value of the investor's freestanding written call option to the investment bank should be its fair value in accordance with paragraphs 815-10-30-1 and 815-10-35-1. In the remarketing format, the transfer of the purchased call option is concurrent with the issuance of the bond. The remaining proceeds would be allocated to the carrying amount of the puttable bond. The debtor recognizes no gain or loss upon the transfer of the option to the investment bank.
  3. c
    Investor's held put option. Neither the debtor nor the investor should account separately for the embedded put option written by the debtor to the investor. Under paragraphs
    815-15-25-41 through 25-43
    , the put option is considered clearly and closely related to the economic characteristics of the bond because it simply accelerates the repayment of principal, involves no substantial premium or discount, and is not contingent.
","snippet":"Structure 5 is analyzed as follows:\n(a) Investment bank's held call option. The debtor should not account separately for the call option held by the investment bank. For accounting purposes, the transaction should be vie…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a59cde9f0151882b5974e0b98831d0a54d43cc09387a48741eaed13d3ddf9b95","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-46","para":"55-46","html":"
Structure 6 has all of the following features:
  1. a
    A debtor issues to an investor a bond that is both puttable (by the investor) and callable (by the holder of the option).
  2. b
    The indenture and the note itself create an assignable right to purchase the bond from the investor and remarket the repriced bond.
  3. c
    A legal assignment of that right by the debtor to an investment bank, in exchange for a payment to the debtor, is executed as part of the underwriting process as an amendment to the note. The assignment typically occurs at the time the bond is issued.
  4. d
    Upon receipt of the notice of assignment (which typically occurs upon issuance of the bonds), the indenture trustee must view the assignee (that is, the investment bank) as the call option holder and does not require any involvement of the debtor when enforcing the assignee's right to call the bond from the investor.
  5. e
    The debtor's only remaining obligation is to pay interest at the reset rate.
","snippet":"Structure 6 has all of the following features:\n(a) A debtor issues to an investor a bond that is both puttable (by the investor) and callable (by the holder of the option).\n(b) The indenture and the note itself create an…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4390630b00a3cbcf76d1a7aaadfd4ef9b7e8499005568ee5f622253e5706297c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-47","para":"55-47","html":"
Structure 6 is analyzed as follows:
  1. a
    Investment bank's held call option. The debtor is not required to account separately for the call option after its transfer to the investment bank. The debtor purchased a transferable freestanding call option from the investor and transferred that option to the investment bank. Therefore, after the transfer, the debtor is no longer a party to the call option and has surrendered its right to prepay the debt. The investment bank acquired the debtor's right to call the bond and relieved the debtor of the obligation to pay the investor the par amount of the bond upon exercise of the call option. Ultimately, the call option is a contract between the investment bank and the investor that permits the investment bank to purchase the bond from the investor at par. From the investor's perspective, that contract is a freestanding written call option that shall be accounted for in accordance with the guidance for a derivative instrument in Subtopic 815-10. That is consistent with the guidance in paragraph 815-10-15-7 that an option on a bond incorporated into the terms of the bond at inception that is explicitly transferable should be considered an attached, freestanding derivative instrument. The investment bank shall also account for a freestanding purchased call option.
  2. b
    Investor's written call option. The carrying value of the investor's freestanding written call option to the investment bank should be its fair value in accordance with paragraphs 815-10-30-1 and 815-10-35-1 with the remaining proceeds allocated to the carrying amount of the puttable bond. In the assignment format, the transfer of the purchased call option by the debtor to the investment bank may not be concurrent with the issuance of the bond. The debtor recognizes no gain or loss upon the transfer of the call option. In transactions involving a delay between the issuance of the bond and the transfer of the assignable call option to the investment bank, the allocation of the initial proceeds to the carrying value of the option would be equal to the fair value of the option. The remaining proceeds would be allocated to the carrying amount of the puttable bond. During any period of time between the initial issuance of the bond and the transfer of the call option to the investment bank, the call option shall be measured at fair value with changes in value recognized in earnings as required by paragraph 815-20-35-1. As a result of the requirement to measure the call option at fair value during the time period before it is assigned to the investment bank, the debtor would not recognize a gain or loss upon the assignment because the proceeds paid by the investment bank would be the option's current fair value on the date of the assignment, which would be the option's carrying amount at that point in time. Any change in the fair value of the option during the time period before it is assigned to the investment bank would be attributable to the passage of time and changes in market conditions.
  3. c
    Investor's held put option. Neither the debtor nor the investor should account separately for the embedded put option written by the debtor to the investor. Under paragraphs
    815-15-25-41 through 25-43
    , the put option is considered clearly and closely related to the economic characteristics of the bond because it simply accelerates the repayment of principal, involves no substantial premium or discount, and is not contingent.
","snippet":"Structure 6 is analyzed as follows:\n(a) Investment bank's held call option. The debtor is not required to account separately for the call option after its transfer to the investment bank. The debtor purchased a transfera…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9c955e4c8e3d0928c11a487cb22c6808f1410439b35d9166d025c73950254d95","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-48","para":"55-48","html":"
A separate agreement may exist that allows the debtor to avoid the remarketing of the bond. That agreement permits the debtor, as of the reset date, to purchase either of the following:
  1. a
    The repriced bond from the investment bank at its then fair value
  2. b
    The unexercised call option held by the investment bank at its then fair value, which in turn would permit the debtor to purchase the bond at par from the investor.
","snippet":"A separate agreement may exist that allows the debtor to avoid the remarketing of the bond. That agreement permits the debtor, as of the reset date, to purchase either of the following:\n(a) The repriced bond from the inv…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:31f5a1cab875fe06f9f74097fe03fa5af3f01f4342102df2b4117d595e9858ea","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-49","para":"55-49","html":"
The additional feature is a separate contract between the debtor and the investment bank. Specifically, it is a freestanding call option purchased by the debtor from the investment bank that permits the debtor to purchase either the repriced bond or the unexercised call option from the investment bank at its then fair value. The guidance for a derivative instrument in Subtopic 815-10 requires that all freestanding derivatives be measured at fair value with changes in value recognized in earnings. However, because the exercise price of the debtor's call option is the then fair value of the repriced bonds or the unexercised call option at the date of exercise, the option itself has a zero fair value. As a result, the asset or liability related to the derivative that would be recognized by the debtor as a result of applying the requirements of that Subtopic has a value of zero.
","snippet":"The additional feature is a separate contract between the debtor and the investment bank. Specifically, it is a freestanding call option purchased by the debtor from the investment bank that permits the debtor to purchas…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4f48dd0a882772b033feffcad4a171348b269f1ac8eaacd11d1d91e212d03a5d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-50","para":"55-50","html":"
A separate agreement may exist under which the debtor writes an option to the investment bank that permits the investment bank to put its call option to the debtor at fair value if a specified contingency occurs (for example, a failed remarketing). That feature provides loss protection to the investment bank.
","snippet":"A separate agreement may exist under which the debtor writes an option to the investment bank that permits the investment bank to put its call option to the debtor at fair value if a specified contingency occurs (for exa…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:23fee060b80dd72e9ed45ddfb36af10a75fc5e79e186556b2bc46f32c65ff712","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-51","para":"55-51","html":"
The additional feature is a separate contract between the debtor and the investment bank. Specifically, it is a freestanding put option written by the debtor to the investment bank. Accordingly, the feature should be accounted for as a freestanding derivative measured at fair value with changes in value recognized in earnings in accordance with the guidance for a derivative instrument in Subtopic 815-10. However, because the exercise price of the debtor's put option is the then fair value of the unexercised call option at the exercise date, the option itself has a zero fair value. As a result, the asset or liability related to the derivative that would be recognized by the debtor as a result of applying the requirements of that Subtopic has a value of zero.
","snippet":"The additional feature is a separate contract between the debtor and the investment bank. Specifically, it is a freestanding put option written by the debtor to the investment bank. Accordingly, the feature should be acc…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b3574ead3d0862266ee890ad47617168203ed935b6ef8631e5f985676acc4b12","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-52","para":"55-52","html":"
Some arrangements provide recourse to the investment bank against the debtor for the fair value of the call option if the investor fails to deliver the bonds to the investment bank upon exercise of its call option. That feature provides loss protection to the investment bank.
","snippet":"Some arrangements provide recourse to the investment bank against the debtor for the fair value of the call option if the investor fails to deliver the bonds to the investment bank upon exercise of its call option. That …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:86cd911b9b09ed270ad3079bab1eff8ea0f480665174f0a097288fdad7b05349","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-53","para":"55-53","html":"
The additional feature is a separate contract between the debtor and the investment bank. Although it is structured as a recourse agreement, the substance of the feature is similar to additional feature 2 in that it is a put option written by the debtor to the investment bank. Accordingly, the feature should be accounted for as a freestanding written put option measured at fair value with changes in value recognized in earnings in accordance with the guidance for a derivative instrument in Subtopic 815-10. However, because the exercise price of the debtor's put option is the then fair value of the unexercised call option at the date of exercise, the option itself has a zero fair value. As a result, the asset or liability related to the derivative that would be recognized by the debtor as a result of applying the requirements of that Subtopic has a value of zero.
","snippet":"The additional feature is a separate contract between the debtor and the investment bank. Although it is structured as a recourse agreement, the substance of the feature is similar to additional feature 2 in that it is a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9f0357dbb86fb00a4675299d26547c9a0dfe12da23652e4b35a6bd81df201381","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-54","para":"55-54","html":"
Variable annuity products are investment contracts as discussed in Subtopic 944-20. Similar to variable life insurance products, policyholders direct their investment account asset mix among a variety of mutual funds composed of equities, bonds, or both, and assume the risks and rewards of investment performance. The funds are generally maintained in separate accounts by the insurance entity. Contract terms generally provide that if the policyholder dies, the greater of the account market value or a minimum death benefit guarantee will be paid. The minimum death benefit guarantee is generally limited to a return of premium plus a minimum return (such as 3 or 4 percent); this life insurance feature represents the fundamental difference from the life insurance contracts that include significant (rather than minimal) levels of life insurance. Over time, these minimum death benefit guarantees have become increasingly sophisticated. The investment account may have various payment alternatives at the end of the accumulation period. One alternative is the right to purchase a life annuity at a fixed price determined at the initiation of the contract.
","snippet":"Variable annuity products are investment contracts as discussed in Subtopic 944-20. Similar to variable life insurance products, policyholders direct their investment account asset mix among a variety of mutual funds com…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1d6ae5b26b9347c542c75ea5fdd15a57ee18edf57ece220290b0f4dd601811ff","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-55","para":"55-55","html":"
Variable annuity product structures as discussed in Topic 944 are generally not subject to the scope of this Subtopic, as follows:
  1. a
    Death benefit component. Paragraph 815-10-15-53(a) excludes a death benefit from the scope of Subtopic 815-10 because the payment of the death benefit is the result of an identifiable insurable event instead of changes in an underlying. Additionally, the death benefit may meet the criteria of a market risk benefit, which is excluded from the scope of this Topic. The death benefit in this example is limited to the floor guarantee of the investment account, calculated as the premiums paid into the investment account plus a guaranteed rate of return, less the account fair value. Topic 944 remains the applicable guidance for the insurance-related accounting.
  2. b
    Investment component. The policyholder directs certain premium investments in the investment account that includes equities, bonds, or both, which are held in separate accounts that are distinct from the insurance entity's general account assets. This component is not considered a derivative instrument because of the unique attributes of traditional variable annuity contracts issued by insurance entities. Furthermore, any embedded derivatives within those investments shall not be separated from the host contract by the insurance entity because the separate account assets are already marked to fair value under Topic 944. In contrast, if the product were an equity-index-based interest annuity (rather than a traditional variable annuity), the investment component may contain an embedded derivative (the equity index-based derivative instrument) that meets all the requirements of paragraph 815-15-25-1 for separate accounting. Before concluding that the investment component contains an embedded derivative, the insurance entity should first evaluate whether the equity-index-based interest annuity contains a market risk benefit (see paragraph 944-40-25-25C).
  3. c
    Investment account surrender right at fair value. Because this right is exercised only at the fund fair value (without the insurance entity's floor guarantee) and relates to a traditional variable annuity contract issued by an insurance entity, this right is not within the scope of Subtopic 815-10.
  4. d
    Payment alternatives at the end of the accumulation period. Payment alternatives that are market risk benefits accounted for under Topic 944 on insurance are not within the scope of this Topic.
","snippet":"Variable annuity product structures as discussed in Topic 944 are generally not subject to the scope of this Subtopic, as follows:\n(a) Death benefit component. Paragraph 815-10-15-53(a) excludes a death benefit from the …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:719f80a1dcfa74374d3194305e3761e97c2aca0a6bc4eb181ae238b95638ee7e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-56","para":"55-56","html":"
The guidance in (b) and (c) in the preceding paragraph is an exception for traditional variable annuity contracts issued by insurance entities. In determining the accounting for other seemingly similar structures, it would be inappropriate to analogize to that guidance due to the unique attributes of traditional variable annuity contracts.
","snippet":"The guidance in (b) and (c) in the preceding paragraph is an exception for traditional variable annuity contracts issued by insurance entities. In determining the accounting for other seemingly similar structures, it wou…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:427d6ed29e589e5d56b525e00f21205747312344f45d3cd4bc6f2d2ab0a0f9de","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-57","para":"55-57","html":"
Paragraph superseded by Accounting Standards Update No. 2018-12.
","snippet":"Paragraph superseded by Accounting Standards Update No. 2018-12.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:445497c281b6ce8e32945dda6cb32ed8beecf0f986be2d620cdc34807f35bf85","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-58","para":"55-58","html":"
During the accumulation phase of a deferred annuity contract, a guarantee of a minimum interest rate to be used in computing periodic annuity payments if and when a policyholder elects to annuitize does not require separate accounting under paragraph 815-15-25-1 because the criterion in paragraph 815-15-25-1(c) is not met. The embedded option does not meet the definition of a derivative instrument because it does not meet the net settlement criteria as discussed beginning in paragraph 815-10-15-99. Settlement of the option can be achieved only by an investment of the account balance in a payout annuity contract in lieu of electing an immediate payment of the account value. If an additional provision existed whereby the policyholder could withdraw all or a portion of its account balance during the payout phase, an embedded derivative would still not exist because the economic benefit of the guaranteed minimum interest rate would be obtainable only if an entity were to maintain the annuity contract through its specified maturity date. However, the embedded option may be considered a market risk benefit (see paragraph 944-40-25-25C).
","snippet":"During the accumulation phase of a deferred annuity contract, a guarantee of a minimum interest rate to be used in computing periodic annuity payments if and when a policyholder elects to annuitize does not require separ…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fffc959fc1554708681a4c0df9edcae12e801d5605ef2743c4e3bced3ba99c94","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-59","para":"55-59","html":"
Paragraph superseded by Accounting Standards Update No. 2018-12.
","snippet":"Paragraph superseded by Accounting Standards Update No. 2018-12.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b89f8b32f63c08ccb73763d42d66245b3b952f6cb262a5377a0c93ab05dfb3f5","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-60","para":"55-60","html":"
Paragraph superseded by Accounting Standards Update No. 2018-12.
","snippet":"Paragraph superseded by Accounting Standards Update No. 2018-12.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0c624be3c6f1cdfdc74e8801ee0bb553f342d28b6626aa76d29a67f5072486f2","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-61","para":"55-61","html":"
Paragraph superseded by Accounting Standards Update No. 2018-12.
","snippet":"Paragraph superseded by Accounting Standards Update No. 2018-12.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a3591593fce466e4575a393a64b1e135bf8e0ca292f163338930074841464d17","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-62","para":"55-62","html":"
This Subtopic defines an equity-indexed annuity as a deferred fixed annuity contract with a guaranteed minimum interest rate plus a contingent return based on some internal or external equity index, such as the Standard & Poor's S&P 500 Index. The guaranteed contract value is generally designed to meet certain regulatory requirements such that the contract holder receives no less than 90 percent of the initial deposit, compounded annually at 3 percent, which establishes a floor value for the contract. Equity-indexed annuities typically have minimal mortality risk and are therefore classified as investment contracts under Topic 944. Equity-indexed annuities often do not have specified maturity dates; therefore, the contracts remain in the deferral (accumulation) phase until the customer either surrenders the contract or elects annuitization. Customers typically can surrender the contract at any point in time, at which time they receive their account value, as specified in the contract, less any applicable surrender charges. The account value is defined in the policy as generally the greater of the policyholder's initial investment plus the equity-indexed return or a guaranteed floor amount (calculated as the policyholder's initial investment plus a specified annual percentage return).
","snippet":"This Subtopic defines an equity-indexed annuity as a deferred fixed annuity contract with a guaranteed minimum interest rate plus a contingent return based on some internal or external equity index, such as the Standard …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0a36d53045eff8a7ab70ccfbd86a70eb3cfcdc2760992f21730336095799381c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-63","para":"55-63","html":"
There are two basic designs for equity-indexed annuities:
  1. a
    The periodic ratchet design, where in the annual version, the customer receives the greater of the appreciation in the equity index during a series of one-year periods (ending on each policy anniversary date) or the guaranteed minimum fixed rate of return over that period
  2. b
    The point-to-point design, where the customer receives the greater of the appreciation in the equity index during a specified period (for example, five or seven years, starting on the policy issue date) or the guaranteed minimum fixed rate of return over that period.
","snippet":"There are two basic designs for equity-indexed annuities:\n(a) The periodic ratchet design, where in the annual version, the customer receives the greater of the appreciation in the equity index during a series of one-yea…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4dfa2dbb49f11da54ca5529415cb91e39d79abd262b1b3f387eff480155579f2","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-64","para":"55-64","html":"
For many products of either design, the contract has any of the following characteristics:
  1. a
    The contract holder receives only a portion of the appreciation in the S&P 500 Index (or other index, as applicable) during the specified period (a participation rate).
  2. b
    The contract has an upper limit on the amount of appreciation that will be credited during any period (a cap rate).
","snippet":"For many products of either design, the contract has any of the following characteristics:\n(a) The contract holder receives only a portion of the appreciation in the S&P 500 Index (or other index, as applicable) during t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3355ddfa01acada46f0fac9643450eddbed92351104d706ce9e6790cdbe8abd7","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-65","para":"55-65","html":"
For the annual ratchet design, the prospective participation and cap rates for each one-year period are often at the discretion of the issuer, and may be reset on future policy anniversary dates, subject to contractual guarantees. Flexibility on the part of the issuer to establish new cap and participation rates, coupled with uncertainty around the customer's account value (which establishes the notional amount of the option) and strike price (which is determined by the level of the index on subsequent anniversary dates) make several of the terms of the forward-starting options unknown at the annuity contract's inception. However, those flexible terms can be viewed as a bundle of options.
","snippet":"For the annual ratchet design, the prospective participation and cap rates for each one-year period are often at the discretion of the issuer, and may be reset on future policy anniversary dates, subject to contractual g…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3b297b6d99461dd315769f7ed07bff623b6e8c85861f2600abcf5df933ebd26d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-66","para":"55-66","html":"
Therefore, holders of equity-indexed annuities that are preparing financial statements shall separate the equity-indexed return portion of the contract, apply this Subtopic, including the guidance in the following paragraph through paragraph 815-15-55-72.
","snippet":"Therefore, holders of equity-indexed annuities that are preparing financial statements shall separate the equity-indexed return portion of the contract, apply this Subtopic, including the guidance in the following paragr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:58f966b0d22a0614174d787d6c44ebcfbca482829ea72cd42844afcc855face2","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-67","para":"55-67","html":"
Before evaluating whether an equity-indexed annuity contains an embedded derivative, an insurance entity should first evaluate whether the contract contains a market risk benefit (see paragraph 944-40-25-25C). Generally, the equity index feature represents a periodic crediting rate mechanism that affects the amounts credited to the contract holder's account balance, rather than representing a benefit in addition to the account balance that protects the contract holder from other-than-nominal capital market risk and exposes the insurance entity to other-than-nominal capital market risk. Periodic crediting rate mechanisms are required to be evaluated for possible bifurcation under this Topic. However, an equity-indexed annuity also may contain one or more market risk benefits (see paragraphs
944-40-55-29A through 55-29D
). From an insurance entity's perspective, the option component of an equity-indexed annuity that specifies a point-to-point design meets the definition of a derivative instrument and requires separate accounting under paragraph 815-15-25-1 unless a fair value election is made pursuant to paragraph 815-15-25-4. (Note that Section 815-15-25 allows for a fair value election for hybrid financial instruments that otherwise would require bifurcation. However, Section 815-15-25 does not apply to hybrid financial instruments that are described in paragraph 825-10-50-8, which include insurance contracts as discussed in Subtopic 944-20, other than financial guarantees and investment contracts.)
","snippet":"Before evaluating whether an equity-indexed annuity contains an embedded derivative, an insurance entity should first evaluate whether the contract contains a market risk benefit (see paragraph 944-40-25-25C). Generally,…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2b491053859b76fb00f77afd9b27013964aa52c0df57dd3564f1977e48dd23df","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-68","para":"55-68","html":"
This guidance also applies to the policyholder because the policyholder does not qualify for a scope exclusion.
","snippet":"This guidance also applies to the policyholder because the policyholder does not qualify for a scope exclusion.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f31f2c36e3fa4085c4af69cdacc2561b135258429051478e52167c2ea17f79aa","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-69","para":"55-69","html":"
For the periodic ratchet design product, the insurance entity has committed to issue a series of options on the index over the duration of the contract. All of those forward-starting options meet the definition of a derivative instrument and require separate accounting under paragraph 815-15-25-1 from the perspective of the insurance entity unless a fair value election is made pursuant to paragraph 815-15-25-4. Paragraph 815-15-25-7 requires that the embedded feature with multiple components be separately accounted for as one compound embedded derivative.
","snippet":"For the periodic ratchet design product, the insurance entity has committed to issue a series of options on the index over the duration of the contract. All of those forward-starting options meet the definition of a deri…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b42e22ed014401658abad2f0d9600c51fd36af3e705f646cc6b56fbf21c2576e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-70","para":"55-70","html":"
In valuing those options, there are three main components to be considered:
  1. a
    Future S&P 500 Index (or other index, as applicable) values will need to be estimated to determine both the future notional amounts at each ratchet date and the future strike prices of the future forward starting options.
  2. b
    Future annual cap and participation rates, which are often at the discretion of the contract issuer, subject to contractually specified minimums and maximums, will need to be estimated.
  3. c
    Noneconomic factors related to policyholder-driven developments such as policy surrenders or mortality.
","snippet":"In valuing those options, there are three main components to be considered:\n(a) Future S&P 500 Index (or other index, as applicable) values will need to be estimated to determine both the future notional amounts at each …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d48078bb15cb045f2f31eb70ae7267ba9c299dae9bb4a066945a59e61ef3097c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-71","para":"55-71","html":"
Given the three components, the forward starting options should be valued using the expected future terms (that is, index values and cap and participation rates), but in no event should the value be less than the minimum amounts contractually agreed on in the contract. Expected terms represent management's estimates of cap and participation rates, rather than contractually guaranteed amounts. The estimated value reflects the notion that the contract provides for a level of equity-indexed return that can be estimated even when considering the issuer's options to adjust the policyholder's participation and cap rates. In subsequent periods when the terms of the forward-starting options become known, the actual terms should be substituted for the expected terms for purposes of valuation.
","snippet":"Given the three components, the forward starting options should be valued using the expected future terms (that is, index values and cap and participation rates), but in no event should the value be less than the minimum…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bca5bd7861060743bec26d80f4b506359397bcf9f0c9da3e7bcad529da603fe7","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-72","para":"55-72","html":"
This guidance also applies to the policyholder (provided it prepares GAAP-based financial statements) because the contracts do not qualify for a scope exception.
","snippet":"This guidance also applies to the policyholder (provided it prepares GAAP-based financial statements) because the contracts do not qualify for a scope exception.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:49107a148494e197e77f1936e171a04fcdf79fe6dff71995af43995182f1b55b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-73","para":"55-73","html":"
Equity-indexed life insurance contracts combine term life insurance coverage with an investment feature, similar to universal life contracts. Death benefit amounts are based on the amount selected by the policyholder plus the account value. Charges for the cost of insurance and administrative costs are assessed periodically against the account. The policyholder's account value, maintained in the insurance entity's general account (not a separate account), is based on the cumulative deposits credited with positive returns based on the S&P 500 Index or some other equity index. An essential component of the contract is that the cash surrender value is also linked to the index. Accordingly, the policy's cash surrender value is also linked to an equity index. The death benefit amount may also be dependent on the cumulative return on the index.
","snippet":"Equity-indexed life insurance contracts combine term life insurance coverage with an investment feature, similar to universal life contracts. Death benefit amounts are based on the amount selected by the policyholder plu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:42db6d7d87c79830c0f8ffa41a1a2b7b8344543f2f04f32c6a74405e4a7bca14","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-74","para":"55-74","html":"
Equity-indexed life insurance contracts are accounted for as universal life insurance contracts under Topic 944. For those contracts, the customer's account value (the investment component of a universal life contract) is credited with a return indexed to an equity index (for example, the S&P 500) rather than an interest rate established by the insurance entity, as is done with typical universal life contracts. The existence of the death benefit provision does not exclude the entire equity-indexed life insurance contract from being subject to Subtopic 815-10 for either the issuer or the policyholder because the policyholder can obtain an equity-linked return by exercising the surrender option before death. Before evaluating whether the equity-indexed life insurance contract contains an embedded derivative, an insurance entity should first evaluate whether the contract contains a market risk benefit (see paragraph 944-40-25-25C).
","snippet":"Equity-indexed life insurance contracts are accounted for as universal life insurance contracts under Topic 944. For those contracts, the customer's account value (the investment component of a universal life contract) i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:193b4c1cf3149fbdcdf4f8a0c05636b1e40c38d248297a6b2825e24651fb1f12","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-75","para":"55-75","html":"
If the investment component of the equity-indexed life insurance contract does not contain a market risk benefit, then the investment component of the equity-indexed life insurance contract would contain an embedded derivative (the equity index-based derivative) that meets all of the requirements of paragraph 815-15-25-1 for separate accounting. (Note that Section 815-15-25 allows for a fair value election for hybrid financial instruments that otherwise would require bifurcation. However, Section 815-15-25 does not apply to hybrid instruments that are described in paragraph 825-10-50-8, which include insurance contracts as discussed in Subtopic 944-20, other than financial guarantees and investment contracts.)
","snippet":"If the investment component of the equity-indexed life insurance contract does not contain a market risk benefit, then the investment component of the equity-indexed life insurance contract would contain an embedded deri…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:51ece013641eee87b666380877b25c497289f15fc83227b14a12b767a9e1c4a3","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-76","para":"55-76","html":"
In contrast, if the contract contained an equity-indexed death benefit component that was over and above the cash surrender value that is payable to the policyholder upon surrender of the policy, that death benefit component would not meet the criterion in paragraph 815-15-25-1(c) for separate accounting. As a separate instrument, that death benefit component would not be a derivative instrument subject to the requirements of Subtopic 815-10 due to the paragraph 815-10-15-53 exclusion for benefits payable only upon death, as illustrated in paragraphs
815-15-55-55 through 55-56
.
","snippet":"In contrast, if the contract contained an equity-indexed death benefit component that was over and above the cash surrender value that is payable to the policyholder upon surrender of the policy, that death benefit compo…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:15b119ac0462fa61a49d9a3e14c4935db3fc96fc8a36a032690b6f60e3459906","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-76A","para":"55-76A","html":"
The following steps specify how an issuer shall apply the guidance on accounting for embedded derivatives in this Subtopic to a convertible debt instrument within the scope of Subtopic 470-20.
  1. a
    Step 1. Identify embedded features, including the embedded conversion option that must be evaluated under Subtopic 815-15.
  2. b
    Step 2. Apply the guidance in Subtopic 815-15 to determine whether any of the embedded features identified in Step 1 must be separately accounted for as derivative instruments.
  3. c
    Step 3. Apply the guidance in Subtopic 470-20 to account for the convertible debt instrument (including the embedded conversion option and any other embedded features, which are not separately accounted for as a derivative instrument in Step 2) as a liability.
  4. d
    Step 4. If one or more embedded features are required to be separately accounted for as a derivative instrument based on the analysis performed in Step 2, that embedded derivative shall be separated from the host contract in accordance with the guidance in this Subtopic.
","snippet":"The following steps specify how an issuer shall apply the guidance on accounting for embedded derivatives in this Subtopic to a convertible debt instrument within the scope of Subtopic 470-20.\n(a) Step 1. Identify embedd…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0236b694454dffce675aaf11e3cde768c8dea82f25fc8e0ddf7c3c625867731a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-76B","para":"55-76B","html":"
An issuer should follow steps similar to those in paragraph 815-15-55-76A to apply the accounting guidance for embedded derivatives in this Subtopic to convertible preferred stock within the scope of Subtopic 505-10, except that in Step 3 the convertible preferred stock (including the conversion option and any other embedded features, which are not separately accounted for as a derivative instrument in Step 2) should be accounted for as equity in accordance with Subtopic 505-10.
","snippet":"An issuer should follow steps similar to those in paragraph 815-15-55-76A to apply the accounting guidance for embedded derivatives in this Subtopic to convertible preferred stock within the scope of Subtopic 505-10, exc…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4b6fa043cd4a7ea416cfc5275dcad206ae5a8bc3c6c168a7edbc37baad8b4246","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-77","para":"55-77","html":"
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From the investor's perspective, the purchase of common stock with an embedded purchased put option that requires physical settlement is a hybrid instrument that shall be evaluated to determine whether it has an embedded derivative that shall be accounted for separately. The embedded purchased put option shall be separated from the equity host because the common stock and the embedded put option are not clearly and closely related (see paragraph 815-15-25-20). For guidance related to an issuer's accounting, see paragraph 815-10-15-76.
","snippet":"From the investor's perspective, the purchase of common stock with an embedded purchased put option that requires physical settlement is a hybrid instrument that shall be evaluated to determine whether it has an embedded…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ba10031f3ed5b57857426aa32c5e1cfd4ca3064fb066e809b9d5c51f8bc1956d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9d72895cba1e0847ac8ca06c3ce607598e19aaa4cdfd656dbc5a8441ee3cad7f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"815-15-55-83","para":"55-83","html":"
The following Cases illustrate the application of paragraph 815-15-15-10(b)(1):
  1. a
    Guarantor not a substantial party to a two-party lease (Case A)
  2. b
    Requisite knowledge, resources, and technology (Case B)
  3. c
    Highly inflationary environment (Case C).
","snippet":"The following Cases illustrate the application of paragraph 815-15-15-10(b)(1):\n(a) Guarantor not a substantial party to a two-party lease (Case A)\n(b) Requisite knowledge, resources, and technology (Case B)\n(c) Highly i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f776b5999e0339170c36a873a5ee6215424af1c211222d06af601d6a14c37893","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-84","para":"55-84","html":"
A U.S. parent entity for which the U.S. dollar is the functional currency has a French subsidiary with a Euro functional currency. The subsidiary enters into a lease with a Canadian entity for which the Canadian dollar is the functional currency that requires lease payments denominated in U.S. dollars. The parent entity guarantees the lease.
","snippet":"A U.S. parent entity for which the U.S. dollar is the functional currency has a French subsidiary with a Euro functional currency. The subsidiary enters into a lease with a Canadian entity for which the Canadian dollar i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:581048ef102eb59e573c2ebceba82543137fbfa357efc133619bfb03e6b6544a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-85","para":"55-85","html":"
The exception in paragraph 815-15-15-10(b)(1) does not apply to the contract. The substantial parties to a lease contract are the lessor and the lessee; a third-party guarantor is not a substantial party to a two-party lease, even if it is a related party (such as a parent entity). Thus, the functional currency of a guarantor is not relevant to the application of that paragraph.
","snippet":"The exception in paragraph 815-15-15-10(b)(1) does not apply to the contract. The substantial parties to a lease contract are the lessor and the lessee; a third-party guarantor is not a substantial party to a two-party l…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e1c99a91806ebe38755027637ec488af14bb68cec65da201a19079dc5a68bd4f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-86","para":"55-86","html":"
The requirement in paragraph 815-15-15-10(b)(1) that the payments be denominated in the functional currency of at least one substantial party to the transaction ensures that the foreign currency is integral to the arrangement and thus considered to be clearly and closely related to the terms of the lease.
","snippet":"The requirement in paragraph 815-15-15-10(b)(1) that the payments be denominated in the functional currency of at least one substantial party to the transaction ensures that the foreign currency is integral to the arrang…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c9ae312856da7e4e6cd8294090ac7fd6fd147e4f6054770e785ba6a2cf98f9d8","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-87","para":"55-87","html":"
A U.S.-based construction entity (the Parent) pursues business in a foreign country on a major construction contract. The Parent has an operating subsidiary (the Subsidiary) in that foreign country. The Subsidiary's functional currency is determined to be the local currency (because of business activities unrelated to the construction contract), which is also the functional currency of the customer under the contract. The Parent's functional currency is the U.S. dollar.
","snippet":"A U.S.-based construction entity (the Parent) pursues business in a foreign country on a major construction contract. The Parent has an operating subsidiary (the Subsidiary) in that foreign country. The Subsidiary's func…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2f0b9cbd59bb69b6f9738c40390d24230e03834f35d22c175ec4fe84fc707191","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-88","para":"55-88","html":"
Primarily for tax and political reasons, the Parent causes its Subsidiary to enter into a contract with the customer (that is, the contract is legally between the Subsidiary and the customer). The contract requires payments by the customer in U.S. dollars. The payments are in U.S. dollars to facilitate the compensation of the Parent for its significant involvement in and management of the contract entered into by the Subsidiary.
","snippet":"Primarily for tax and political reasons, the Parent causes its Subsidiary to enter into a contract with the customer (that is, the contract is legally between the Subsidiary and the customer). The contract requires payme…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1b0a93dd54d2a628311611fa61a0bce90d0399a55f2091e48ff49f71b9f2e597","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-89","para":"55-89","html":"
The Subsidiary, by itself, does not possess the requisite financial, human, and other resources, technology, and knowledge to execute the construction contract on its own. The Parent provides the majority of the resources required under the contract, including direct involvement in negotiating the terms of the contract, managing and executing the contract throughout its duration, and maintaining all contract supporting functions, such as legal, tax, insurance, and risk management. Because it is controlled by the Parent, the Subsidiary does not have a choice of subcontractor for these resources and services and will always integrate the Parent into all phases of the contract. Without the Parent, the Subsidiary and the customer would probably never have entered into the construction contract because the Subsidiary could not perform under this contract without the help of the Parent.
","snippet":"The Subsidiary, by itself, does not possess the requisite financial, human, and other resources, technology, and knowledge to execute the construction contract on its own. The Parent provides the majority of the resource…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0c17592cf6450a087e4e74120dceda06af1addc5a18cc1c5e13ea868b0f02405","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-90","para":"55-90","html":"
In this Case, the Parent is a substantial party to the construction contract entered into by the Subsidiary for the purposes of applying paragraph 815-15-15-10(b)(1) because the Parent will be providing the majority of resources required under the contract on behalf of the Subsidiary, which is the legal party to the contract.
","snippet":"In this Case, the Parent is a substantial party to the construction contract entered into by the Subsidiary for the purposes of applying paragraph 815-15-15-10(b)(1) because the Parent will be providing the majority of r…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d0ebd65c5386c092e394d9895ba7e76ebfcb5cb9176a60c9f4eaf7802ef80851","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-91","para":"55-91","html":"
The following Cases illustrate the application of the scope exception in paragraph 815-15-15-10:
  1. a
    The contractual payments are denominated in a currency that, while not the functional currency, is used as if it were the functional currency due to a highly inflationary economy (Case C1).
  2. b
    The economy of the primary economic environment ceases to be highly inflationary after the inception of the contract (Case C2).
","snippet":"The following Cases illustrate the application of the scope exception in paragraph 815-15-15-10:\n(a) The contractual payments are denominated in a currency that, while not the functional currency, is used as if it were t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c38040686251830b54b8079206bdee8b8c39ade9456e0297c3e1bffbc2443844","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-92","para":"55-92","html":"
Cases C1 and C2 share the following assumptions. A U.S. parent entity for which the U.S. dollar (USD) is both the functional currency and the reporting currency has a Venezuelan subsidiary. The subsidiary's sales, expenses, and financing are primarily denominated in the Mexican peso (MXN), and therefore the subsidiary considers MXN to be its functional currency as required by Topic 830. However, assume that the economy in Mexico is highly inflationary, and therefore that Topic requires that the parent entity's reporting currency (that is, USD) be used as if it were the subsidiary's functional currency. The subsidiary enters into a lease with a Canadian entity for property in Venezuela that requires the subsidiary to make lease payments in USD. Further, assume that the Canadian entity's functional currency is the Canadian dollar (CAD). The Venezuelan subsidiary's local currency is VEB (the Venezuelan bolivar).
","snippet":"Cases C1 and C2 share the following assumptions. A U.S. parent entity for which the U.S. dollar (USD) is both the functional currency and the reporting currency has a Venezuelan subsidiary. The subsidiary's sales, expens…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:49727cd46c6a88313904162c3921ed309a7cf9b29a41b7c9996b2999b7d7da62","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-93","para":"55-93","html":"
The exception in paragraph 815-15-15-10 applies to contract because the subsidiary uses USD as if it were the functional currency. The conclusion is not affected by the fact that USD is not the currency of the primary economic environment in which either the Venezuelan subsidiary or the Canadian lessor operates (that is, USD is not the functional currency of either party to the lease). The forward contract to deliver USD embedded in the lease contract should not be bifurcated from the lease host. The exception in paragraph 815-15-15-10 would apply to the lease contract in this Example if the payments under that contract were denominated in any of the following four currencies: USD, MXN, VEB, or CAD. The exception applies to both of the substantial parties to the contract, the lessor and the lessee.
","snippet":"The exception in paragraph 815-15-15-10 applies to contract because the subsidiary uses USD as if it were the functional currency. The conclusion is not affected by the fact that USD is not the currency of the primary ec…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f6f55c536dedb70b6f0e9c41bb55991d9fe634cc9a17831d360426494632d634","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-94","para":"55-94","html":"
Assume that, during the term of the property lease, the Mexican economy ceases to be highly inflationary. Therefore, the Venezuelan subsidiary's financial statements cease to be remeasured as if USD were the functional currency and, instead, those financial statements are remeasured using the subsidiary's functional currency, MXN.
","snippet":"Assume that, during the term of the property lease, the Mexican economy ceases to be highly inflationary. Therefore, the Venezuelan subsidiary's financial statements cease to be remeasured as if USD were the functional c…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:171391213df1d396a7b7f06a7578391c6c9ff7b1b4591e99d2737f13692fda45","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-95","para":"55-95","html":"
When the lease was entered into, the subsidiary used USD as if it were the functional currency; therefore, the foreign currency embedded derivative would have qualified for the exception in paragraph 815-15-15-10 for both the lessor and the lessee. The fact that the subsidiary subsequently ceased using USD as if it were the functional currency and, instead, now uses MXN (which was outside the control of management of the entity because it is contingent upon a change in the Mexican economy) does not affect the application of the exception because the subsidiary qualified for the exception at the inception of the contract. However, if the subsidiary would enter into an extension of the lease or a new lease that required payments in USD, the exception would not apply because at the time the new or extended lease was entered into, the subsidiary no longer used USD as if it were the functional currency.
","snippet":"When the lease was entered into, the subsidiary used USD as if it were the functional currency; therefore, the foreign currency embedded derivative would have qualified for the exception in paragraph 815-15-15-10 for bot…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a0bbc8664733227810e0518aa2460b9418420411c285eabc3db0da71c53d15e6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-96","para":"55-96","html":"
This Example illustrates the application of the phrase routinely denominated in international commerce in paragraph 815-15-15-10(b)(2).
","snippet":"This Example illustrates the application of the phrase routinely denominated in international commerce in paragraph 815-15-15-10(b)(2).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ce784db5312cf3d7594df4689bb784f3e0283843bba1909512173ad3fc29a71f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-97","para":"55-97","html":"
A real estate lease negotiated privately between entities involved in international commerce in certain South American economies would routinely require U.S. dollar (USD) payments. Real estate leases negotiated privately between entities involved in international commerce in European economies would routinely not require USD payments. The lessee is a Canadian entity that uses the Canadian dollar (CAD) as its functional currency. The lessor is a Venezuelan entity whose functional currency is the Mexican peso (MXN). The lease payments are denominated in USD.
","snippet":"A real estate lease negotiated privately between entities involved in international commerce in certain South American economies would routinely require U.S. dollar (USD) payments. Real estate leases negotiated privately…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:534c3f76a4874655e6193f4ef6a952704ee7e8baa2b46c26c206f96b6cd35094","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-98","para":"55-98","html":"
Because real estate leases around the world are not routinely denominated in USD, the leasing transaction would not qualify for the exception in paragraph 815-15-15-10(b)(2).
","snippet":"Because real estate leases around the world are not routinely denominated in USD, the leasing transaction would not qualify for the exception in paragraph 815-15-15-10(b)(2).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:eba49d0c45d6c6170d2ec52463d58f4c08315dc6a7c61d708bbca241060c2c05","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-99","para":"55-99","html":"
This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a). Two entities enter into a long-term service contract whereby Entity A agrees to provide a service to Entity B at market rates over a three-year period. Entity B forecasts it will pay DKK (the Danish kroner) 1,000 to Entity A at the end of the 3-year period for all services rendered under the contract. Entity A's functional currency is DKK and Entity B's is the U.S. dollar (USD). In addition to providing the terms under which the service will be provided, the contract includes a foreign currency exchange provision. The provision requires that over the term of the contract, Entity B will pay or receive an amount equal to the fluctuation in the DKK/USD exchange rate applied to a notional amount of DKK 100,000 (that is, if USD appreciates against DKK, Entity B will pay the appreciation, and if USD depreciates against DKK, Entity B will receive the depreciation). The host contract is not a derivative instrument and will not be recorded in the financial statements at fair value.
","snippet":"This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a). Two entities enter into a long-term service contract whereby Entity A agrees to provide a service to Enti…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4fdb8d48e8345367bc3eda74e54720aa54a0574a48d3119fcd7615015cb2959f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-100","para":"55-100","html":"
The foreign currency derivative embedded in the long-term service contract should be separated from the host long-term service contract and considered a derivative instrument under paragraph 815-15-25-1. (Note that Section 815-15-25 does not apply to hybrid instruments that are not financial instruments, such as contracts that require the delivery of services.) Because the contract is leveraged by requiring the computation of the payment based on a DKK 100,000 notional amount, the contract is a hybrid instrument that contains an embedded derivative—a foreign currency swap with a notional amount of DKK 99,000. That embedded derivative is not clearly and closely related to the host contract and under paragraph 815-15-25-1 shall be recorded separately from the DKK 1,000 contract. Either party to the contract can designate the bifurcated foreign currency derivative instrument as a hedging instrument pursuant to Subtopic 815-20 if applicable qualifying criteria are met.
","snippet":"The foreign currency derivative embedded in the long-term service contract should be separated from the host long-term service contract and considered a derivative instrument under paragraph 815-15-25-1. (Note that Secti…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:240b7e18cdff909d6a2291a65be02eb430d83a644339659b6bf56feae418c3da","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-101","para":"55-101","html":"
The following Cases illustrate the application of paragraph 815-15-25-46:
  1. a
    Credit-linked note (Case A)
  2. b
    Reinsurer's receivable arising from a modified coinsurance arrangement (Case B).
","snippet":"The following Cases illustrate the application of paragraph 815-15-25-46:\n(a) Credit-linked note (Case A)\n(b) Reinsurer's receivable arising from a modified coinsurance arrangement (Case B).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4c79c2dfab32b4b223e58be958f00494957af76a947b2d2ac9c9c32ade86cffd","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-102","para":"55-102","html":"
In both of these Cases, the embedded derivative generally will require bifurcation. However, the criteria in paragraph 815-15-25-1(b) through (c) shall be considered before concluding that the embedded derivative should be bifurcated and accounted for separately. The nature of the embedded derivative and the host contract in both Cases should be determined based on the facts and circumstances of the individual contract.
","snippet":"In both of these Cases, the embedded derivative generally will require bifurcation. However, the criteria in paragraph 815-15-25-1(b) through (c) shall be considered before concluding that the embedded derivative should …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:20e2f3c1adb9de7207a5fb6566b177e2684982f9bc81ff96a9c6220527f950e6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-103","para":"55-103","html":"
Entity A issues to an investor a fixed-rate, 10-year, $10 million credit-linked note that provides for periodic interest payments and the repayment of principal at maturity. However, upon default of a specified reference security (an Entity X subordinated debt obligation) the redemption value of the note may be zero or there may be some claim to the recovery value of the reference security (depending on the terms of the specific arrangement). Generally, the term reference security refers to the security whose credit rating or default determines the cash flows under a credit derivative. Usually, the terms of credit-linked notes explicitly reference Committee on Uniform Security Identification Procedures (CUSIP) numbers of securities in the marketplace. In an event of default of the specified reference security, there is no recourse to the general credit of the obligor (Entity A). In exchange for accepting the default risk of the reference security, the note entitles the investor to an enhanced yield. The transaction results in the investor selling credit protection and Entity A buying credit protection.
","snippet":"Entity A issues to an investor a fixed-rate, 10-year, $10 million credit-linked note that provides for periodic interest payments and the repayment of principal at maturity. However, upon default of a specified reference…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3b2b66f3bb9b7e8beb1abb57a2455e19924ddf9bfc38e6727ed689cdccb82055","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-104","para":"55-104","html":"
The credit-linked note includes an embedded credit derivative. The credit risk exposure of the reference security (Entity X) and the risk exposure arising from the creditworthiness of the obligor (Entity A) are not clearly and closely related. Thus, the economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the debt host contract and, accordingly, the criterion in paragraph 815-15-25-1(a) is met.
","snippet":"The credit-linked note includes an embedded credit derivative. The credit risk exposure of the reference security (Entity X) and the risk exposure arising from the creditworthiness of the obligor (Entity A) are not clear…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d340ddad185d32766c2c108b108a07aa4f346902d26f69064e04b333b6ac8796","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-105","para":"55-105","html":"
Paragraph 815-15-25-6 explains that the fair value election for hybrid financial instruments that otherwise would require bifurcation does not apply to hybrid financial instruments that are described in paragraph 825-10-50-8, which include insurance contracts as discussed in Section 944-20-15, other than financial guarantees and investment contracts.
","snippet":"Paragraph 815-15-25-6 explains that the fair value election for hybrid financial instruments that otherwise would require bifurcation does not apply to hybrid financial instruments that are described in paragraph 825-10-…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cc445b4dc10bb66febb876ae7c90ad9052c488be276ab68b9ab1ef9d6920cd80","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-106","para":"55-106","html":"
Consideration should be given to whether the embedded derivative could possibly not be subject to this Topic as a financial guarantee under paragraph 815-10-15-58 and, in that circumstance, the embedded derivative would not warrant bifurcation.
","snippet":"Consideration should be given to whether the embedded derivative could possibly not be subject to this Topic as a financial guarantee under paragraph 815-10-15-58 and, in that circumstance, the embedded derivative would …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b182292bc129d02efaf8b1461e7f2ccf6424bf3c9158d4f384587e35be9d88da","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-107","para":"55-107","html":"
Reinsurance Entity B enters into a modified coinsurance arrangement (also referred to as a modco arrangement), which is a reinsurance arrangement in which funds are withheld by the ceding insurer, thereby creating an obligation for the ceding entity to pay the reinsurer at a later date. Concurrently, the reinsurer (Entity B) recognizes a funds-withheld receivable from the ceding insurer as well as a liability representing reserves for the insurance coverage assumed under the modco arrangement. (The amount of Entity B's receivable is the ceding entity's statutory reserve, whereas the amount of Entity B's liability is the reserve under GAAP.) The terms of the ceding entity's payable (and Entity B's funds-withheld receivable) provide for the future payment of a principal amount plus a return (that may be negative) that is based on a specified proportion of the ceding entity's return on either its general account assets or a specified block of those assets (such as a specific portfolio of its investment securities). That portfolio is typically composed primarily of fixed-rate debt securities.
","snippet":"Reinsurance Entity B enters into a modified coinsurance arrangement (also referred to as a modco arrangement), which is a reinsurance arrangement in which funds are withheld by the ceding insurer, thereby creating an obl…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9d1b48f51b40bf87dffbdf4f912aaa808087185877cb39add725af145865f6fa","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-108","para":"55-108","html":"
With respect to the modified coinsurance arrangement, the ceding entity's funds-withheld payable and Entity B's funds-withheld receivable include an embedded derivative that is not clearly and closely related to the host contract. The yield on the payable and receivable in the host contract in this Case is based on a specified proportion of the ceding entity's return on either its general account assets or a specified block of those assets (such as a specific portfolio of the ceding entity's investment securities). The risk exposure of the ceding entity's return on its general account assets or its securities portfolio is not clearly and closely related to the risk exposure arising from the overall creditworthiness of the ceding entity, which is also affected by other factors. Consequently, the economic characteristics and risks of the embedded derivative feature are not clearly and closely related to the economic characteristics and risks of the host contract and, accordingly, the criterion in paragraph 815-15-25-1(a) is met. This analysis applies whether the host contract is determined to be a debt host or an insurance contract. For example, if the host contract is determined to be the modified coinsurance arrangement (including the funds-withheld receivable-payable but excluding the embedded derivative), the economic characteristics and risks of the embedded derivative feature are not clearly and closely related to the economic characteristics and risks of the host contract and, accordingly, the criterion in that paragraph is met.
","snippet":"With respect to the modified coinsurance arrangement, the ceding entity's funds-withheld payable and Entity B's funds-withheld receivable include an embedded derivative that is not clearly and closely related to the host…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:37e77d2c0dc104d1b14be6414006acde4e90b0412f350062a781f2f13d42ec4f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-109","para":"55-109","html":"
The other criteria in paragraph 815-15-25-1 generally would be met, thereby requiring that the embedded derivative be bifurcated and accounted for separately.
","snippet":"The other criteria in paragraph 815-15-25-1 generally would be met, thereby requiring that the embedded derivative be bifurcated and accounted for separately.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7f271f554c169817d96c8ec67ef9f0200ea03da532682382e7a8eccae432dc3a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-110","para":"55-110","html":"
This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a). A reporting entity issues $100,000 of mandatorily redeemable preferred stock whose preferred dividends are payable in cash but that requires redemption at the end of 1 year for a payment of 312 ounces of gold. Alternatively, the reporting entity issues $100,000 of mandatorily redeemable preferred stock whose redemption at the end of 1 year is payable only in a fixed amount of a specified foreign currency. Topic 480 requires that mandatorily redeemable financial instruments in the form of shares, as defined in that Subtopic, be classified as liabilities, and not as temporary equity (which had been done previously). Consequently, this guidance does not address the application of paragraph 815-10-15-74(a).
","snippet":"This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a). A reporting entity issues $100,000 of mandatorily redeemable preferred stock whose preferred dividends ar…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:11fdcf23beaabd2d7878e52ceb5442fe7384c9ddf628f288c934cf829dc15cb2","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-111","para":"55-111","html":"
The mandatorily redeemable preferred stock payable in gold contains an embedded derivative whose underlying is the price of gold. That embedded derivative should be separated from the host contract and accounted for as a derivative instrument because the embedded derivative is not clearly and closely related to the host contract.
","snippet":"The mandatorily redeemable preferred stock payable in gold contains an embedded derivative whose underlying is the price of gold. That embedded derivative should be separated from the host contract and accounted for as a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d462f66a24355491a286470f8c07fcf961963b85d2cf66c8fefcf2988c1a4933","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-112","para":"55-112","html":"
Mandatorily redeemable preferred stock whose periodic preferred dividend payments, redemption payment, or both are payable only in a stipulated amount of a specified foreign currency contain no embedded foreign currency derivative that warrants separate accounting under this Subtopic. Instead, the reporting entity shall apply the provisions of Topic 830 to the foreign-currency-denominated mandatorily redeemable preferred stock.
","snippet":"Mandatorily redeemable preferred stock whose periodic preferred dividend payments, redemption payment, or both are payable only in a stipulated amount of a specified foreign currency contain no embedded foreign currency …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:392d89edf34a57e78ca590d7cca9f4d51813e954975e7260a537fb548559e7b9","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-113","para":"55-113","html":"
In contrast, if the holder of the mandatorily redeemable preferred stock had the choice of receiving, or the issuer had the choice of making, the redemption payment, the dividend payments, or both in either a stipulated amount of U.S. dollars or a stipulated amount of a specified currency, then that instrument contains an embedded foreign currency option that is subject to this Subtopic. Because the reporting entity has the option to make payments in U.S. dollars or in a specified foreign currency, the provisions of paragraph 815-15-15-10 are not relevant to that instrument. That embedded foreign currency option should be separated from the host contract and accounted for as a derivative instrument because the embedded foreign currency option is not clearly and closely related to issuing preferred stock unless a fair value election is made pursuant to paragraph 815-15-25-4.
","snippet":"In contrast, if the holder of the mandatorily redeemable preferred stock had the choice of receiving, or the issuer had the choice of making, the redemption payment, the dividend payments, or both in either a stipulated …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4805d19d3d9fa54532e8ae1e7b96bc46192ecfbdf1f0a813013b3e76f21b244f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-114","para":"55-114","html":"
This Example illustrates the application of the clearly and closely related criterion as discussed in paragraphs 815-15-25-1(a) and 815-15-25-19. A manufacturer enters into a long-term contract to purchase a specified quantity of certain raw materials from a supplier. Under the contract, the supplier will provide the manufacturer with the materials at the then-current list price but within a specified range. For example, the purchase price may not exceed a cap of $120 per ton or fall below a floor of $100 per ton, and the current list price at inception of the contract is $110 per ton. The purchase contract in its entirety does not meet the definition of a derivative instrument due to the absence of a net settlement characteristic (that is, the contract requires delivery of a raw material that is not readily convertible to cash). In addition, the purchase contract is not measured at fair value under other applicable GAAP.
","snippet":"This Example illustrates the application of the clearly and closely related criterion as discussed in paragraphs 815-15-25-1(a) and 815-15-25-19. A manufacturer enters into a long-term contract to purchase a specified qu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4553cad7bbb061623a4b771232bb998e06f7af6264466fb153d6713d8b913510","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-115","para":"55-115","html":"
From the manufacturer's perspective, the embedded derivatives contained in the purchase contract are 2 options: a purchased call option with a strike price of $120 per ton and a written put option with a strike price of $100 per ton. Those options would meet the definition of a derivative instrument under Subtopic 815-10 if they were freestanding because they have a notional amount, have an underlying (the price per ton), require a small or no initial net investment, and can be net settled. Those options have the characteristic of net settlement under paragraph 815-10-15-100 because they represent an adjustment (that is, either a premium or rebate) of the current list price in an amount equal to the difference between that current list price and the applicable strike amount (of either $120 per ton or $100 per ton). (Paragraphs
815-10-15-119 through 15-120
do not apply to the options because they have no provision for delivery.) The host contract can be considered a purchase contract that requires delivery of the raw materials at a price equal to the current list price.
","snippet":"From the manufacturer's perspective, the embedded derivatives contained in the purchase contract are 2 options: a purchased call option with a strike price of $120 per ton and a written put option with a strike price of …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:70b06f52337d14c08c8ff1efc01e84d2b0cfa90d8ca296ab8ce488d7fa4d09a7","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-116","para":"55-116","html":"
Although the example purchase contract economically contains embedded derivatives, those embedded derivatives should not be accounted for separately because they are clearly and closely related to the host contract.
","snippet":"Although the example purchase contract economically contains embedded derivatives, those embedded derivatives should not be accounted for separately because they are clearly and closely related to the host contract.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:74a19d6dcd1e5d54b59f15eb4d5eae9410dd7586b77fa1aa5a6262f6988f6161","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-117","para":"55-117","html":"
This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a)to the determination of what is the host contract and what is the embedded derivative composing the illustrative hybrid instrument. This Example has the following assumptions:
  1. a
    An entity (Entity A) issues a 5-year debt instrument with a principal amount of $1,000,000 indexed to the stock of an unrelated publicly traded entity (Entity B).
  2. b
    At maturity, the holder of the instrument will receive the principal amount plus any appreciation or minus any depreciation in the fair value of 10,000 shares of Entity B, with changes in fair value measured from the issuance date of the debt instrument.
  3. c
    No separate interest payments are made.
  4. d
    The market price of Entity B shares to which the debt instrument is indexed is $100 per share at the issuance date.
","snippet":"This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a)to the determination of what is the host contract and what is the embedded derivative composing the illustr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a24ed6a0138086ffac4fab5e20342d9c4aeea8dc3e411290b30de8dfea7b3b61","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-118","para":"55-118","html":"
The instrument is not itself a derivative instrument because it requires an initial net investment equal to the notional amount. The host contract is a debt instrument because the instrument has a stated maturity and because the holder has none of the rights of a shareholder, such as the ability to vote the shares and receive distributions to shareholders. The embedded derivative is an equity-based derivative that has as its underlying the fair value of the stock of Entity B. As a result of the host instrument being a debt instrument and the embedded derivative having an equity-based return, the embedded derivative is not clearly and closely related to the host contract and must be separated from the host contract and accounted for as a derivative by both the issuer and the holder of the hybrid instrument. (Paragraph 815-15-25-4 allows for a fair value election for hybrid financial instruments that otherwise would require bifurcation. Hybrid financial instruments that are elected to be accounted for in their entirety at fair value cannot be used as a hedging instrument in a Topic 815 hedging relationship.)
","snippet":"The instrument is not itself a derivative instrument because it requires an initial net investment equal to the notional amount. The host contract is a debt instrument because the instrument has a stated maturity and bec…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4566b2b2b49bb49e69b78b12524920ae7261a731826adfdf58c3d3675931ee61","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-119","para":"55-119","html":"
This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a). Even though an overall hybrid instrument that provides for repayment of principal may include a return based on the market price (the underlying as defined) of XYZ Corporation common stock, the host contract does not involve any existing or potential residual interest rights (that is, rights of ownership) and thus would not be an equity instrument. The host contract would instead be considered a debt instrument, and the embedded derivative that incorporates the equity-based return would not be clearly and closely related to the host contract.
","snippet":"This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a). Even though an overall hybrid instrument that provides for repayment of principal may include a return ba…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6e64293603bd52f9a3a60afbc419b3f00d976980bad84032325fcece4ee5e365","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-120","para":"55-120","html":"
This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a) to a market value annuity accounted for as an investment contract under Topic 944.
","snippet":"This Example illustrates the application of the clearly and closely related criterion in paragraph 815-15-25-1(a) to a market value annuity accounted for as an investment contract under Topic 944.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f246871c72d4109868a36ff8b21f3960c1c46f48d371fe7a7e2a24cc8b53279a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-121","para":"55-121","html":"
As an example of how the market-adjusted value is calculated at any period end, the formula typically takes the contractual guaranteed amount payable at the end of the specified term, including the applicable guaranteed interest, and discounts that future cash flow to its present value using rates currently being offered for new market value annuity purchases with terms equal to the remaining term to maturity of the existing market value annuity. As a result, the market value adjustment may be positive or negative, depending on market interest rates at each period end. In a rising interest rate environment, the market adjustment may be such that less than substantially all principal is recovered upon surrender.
","snippet":"As an example of how the market-adjusted value is calculated at any period end, the formula typically takes the contractual guaranteed amount payable at the end of the specified term, including the applicable guaranteed …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:40be298ed7c5824e2204f7431d39a09cf2484135ac3521380d1d3c0113490cf8","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-122","para":"55-122","html":"
Assume all of the following terms of an example annuity with a fixed return if held for a specified period or market-adjusted value if surrendered early:
  1. a
    Single premium deposit: $100,000 on December 31, 1998
  2. b
    Maturity date: December 31, 2007 (9-year term)
  3. c
    Guaranteed fixed rate: 7%
  4. d
    Fixed maturity value: $183,846 ($100,000 at 7% compounded for 9 years)
  5. e
    Market value adjustment formula: discount future fixed maturity value to present value at surrender date using currently offered market value annuity rate for the period of time left until maturity.
","snippet":"Assume all of the following terms of an example annuity with a fixed return if held for a specified period or market-adjusted value if surrendered early:\n(a) Single premium deposit: $100,000 on December 31, 1998\n(b) Matu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ed32d2de0b6a38a6a1bc96a7468284e61f960cee4651c75ff96eee71be0e6865","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-123","para":"55-123","html":"
Assume the following values at December 31, 1999.
","snippet":"Assume the following values at December 31, 1999.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9c264b205872d9dd97cd21dcee75b90a0828c98ae0e0b927764648a3b5cf2d27","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-124","para":"55-124","html":"
Because the criteria in paragraphs 815-15-25-26 and
815-15-25-41 through 25-43
are not met, the embedded derivative (prepayment option) is clearly and closely related to the host debt contract.
","snippet":"Because the criteria in paragraphs 815-15-25-26 and 815-15-25-41 through 25-43 are not met, the embedded derivative (prepayment option) is clearly and closely related to the host debt contract.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4a0b0e87600940367299fdac36a6ab80da943cc4736d9f4309c0caa0621f6c74","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-125","para":"55-125","html":"
There is no substantial premium or discount present in these contracts at inception, and the put option is exercisable at any time by the contract holder (that is, the put option is not contingently exercisable). Because the investor always has the option to hold the market value annuity to maturity and receive the fixed rate and the insurance entity cannot force the investor to surrender, the condition in paragraph 815-15-25-26(a) would not be met (that is, the insurance entity does not have the contractual right to demand surrender and put the investor in a situation of not recovering substantially all of its initial recorded investment).
","snippet":"There is no substantial premium or discount present in these contracts at inception, and the put option is exercisable at any time by the contract holder (that is, the put option is not contingently exercisable). Because…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3f9f2f70dc0d6a134d844492a4377a42946269bb574b1ae1fc08dc52ac0b3022","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-126","para":"55-126","html":"
The condition in paragraph 815-15-25-26(b) also would not be met in a typical market value annuity, because there is no leverage feature that would result in twice the initial and current market rate of return.
","snippet":"The condition in paragraph 815-15-25-26(b) also would not be met in a typical market value annuity, because there is no leverage feature that would result in twice the initial and current market rate of return.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8acb5b9ccb71c5809311b4cf180bc853869b681aa406939c7d385b7b2eec67c9","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-127","para":"55-127","html":"
The prepayment option enables the holder simply to cash out of the instrument at fair value at the surrender date. The prepayment option provides only liquidity to the holder. The holder receives only the market-adjusted value, which is equal to the fair value of the investment contract at the surrender date. As such, the prepayment option (the embedded derivative) has a fair value of zero at all times.
","snippet":"The prepayment option enables the holder simply to cash out of the instrument at fair value at the surrender date. The prepayment option provides only liquidity to the holder. The holder receives only the market-adjusted…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fc26162e6e62878ff43bc69382cfe27ea5c6ecad521ae8d73f689f2b60ece999","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-128","para":"55-128","html":"
The following Cases illustrate the application of paragraph 815-15-25-26(a):
  1. a
    Note A (Case A)
  2. b
    Note B (Case B)
  3. c
    Note C (Case C).
","snippet":"The following Cases illustrate the application of paragraph 815-15-25-26(a):\n(a) Note A (Case A)\n(b) Note B (Case B)\n(c) Note C (Case C).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d9b086c087159efdd9903fb94a0b6e53857bfa22dbbccc5f3713b1ddb8ef4ee5","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-129","para":"55-129","html":"
The accompanying analysis does not address the application of the condition in paragraph 815-15-25-26(b).
","snippet":"The accompanying analysis does not address the application of the condition in paragraph 815-15-25-26(b).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c3212667e42cfb11a11e05cfd8555285e6fcaa7559cac764025efca85b37e62e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-130","para":"55-130","html":"
If an investor in a 10-year note has the contingent option at the end of Year 2 to put it back to the issuer at its then fair value (based on its original 10-year term), the condition in paragraph 815-15-25-26(a) would not be met even though the note's fair value could have declined so much that, by exercising the option, the investor ends up not recovering substantially all of its initial recorded investment. See paragraph 815-15-25-29.
","snippet":"If an investor in a 10-year note has the contingent option at the end of Year 2 to put it back to the issuer at its then fair value (based on its original 10-year term), the condition in paragraph 815-15-25-26(a) would n…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:85ea075880f97c0e23501ca2a8fa414d48bb972ec9d11861e95be7e9f651354c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-131","para":"55-131","html":"
An investor purchased from an A-rated issuer for $10 million a structured note with a $10 million principal, a 9.5 percent interest coupon, and a term of 10 years at a time when the current market rate for 10-year A-rated debt is 7 percent. Assume that the terms of the note require that, at the beginning of the third year of its term, the principal on the note be reduced to $7.1 million and the coupon interest rate be reduced to zero for the remaining term to maturity if interest rates for A-rated debt have increased to at least 8 percent by that date. That structured note would meet the condition in paragraph 815-15-25-26(a) for both the issuer and the investor because the investor could be forced to accept settlement that causes the investor not to recover substantially all of its initial recorded investment. That is, if increases in the interest rate for A-rated debt trigger the modification of terms, the investor would receive only $9 million, comprising $1.9 million in interest payments for the first 2 years and $7.1 million in principal repayment, thus not recovering substantially all of its $10 million initial net investment.
","snippet":"An investor purchased from an A-rated issuer for $10 million a structured note with a $10 million principal, a 9.5 percent interest coupon, and a term of 10 years at a time when the current market rate for 10-year A-rate…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0c55b393955b584cd9bc37ab37689e2cd524dc1fa1b23b38b432826b4e1915a6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-132","para":"55-132","html":"
The investor purchases for $10,000,000 a structured note with a face amount of $10,000,000, a coupon of 8.9 percent, and a term of 10 years. The current market rate for 10-year debt is 7 percent given the A credit quality of the issuer. The terms of the structured note require that if the interest rate for A-rated debt has increased to at least 10 percent at the end of 2 years, the coupon on the note be reduced to zero, and the investor purchase from the issuer for $10,000,000 an additional note with a face amount of $10,000,000, a zero coupon, and a term of 3.5 years.
","snippet":"The investor purchases for $10,000,000 a structured note with a face amount of $10,000,000, a coupon of 8.9 percent, and a term of 10 years. The current market rate for 10-year debt is 7 percent given the A credit qualit…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1bb8ec51e44fa83a4abf5273fa90d0eadbe805538409d8977505f7fb93eca148","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-133","para":"55-133","html":"
The structured note contains an embedded derivative that shall be accounted for separately unless a fair value election is made pursuant to paragraph 815-15-25-4.
","snippet":"The structured note contains an embedded derivative that shall be accounted for separately unless a fair value election is made pursuant to paragraph 815-15-25-4.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:de02e401c838164515ff4c9444d9bbd552076967e4b4fe297ec53eb6ad020784","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-134","para":"55-134","html":"
The requirement that, if interest rates increase and the embedded derivative is triggered, the investor purchase the second $10,000,000 note for an amount in excess of its fair value (which is about $7,100,000 based on a 10 percent interest rate) generates a result that is economically equivalent to requiring the investor to make a cash payment to the issuer for the amount of the excess. As a result, the cash flows on the original structured note and the excess purchase price on the second note shall be considered in concert. The cash inflows ($10,000,000 principal and $1,780,000 interest) that will be received by the investor on the original note shall be reduced by the amount ($2,900,000) by which the purchase price of the second note is in excess of its fair value, resulting in a net cash inflow ($8,880,000) that is not substantially all of the investor's initial net investment on the original note.
","snippet":"The requirement that, if interest rates increase and the embedded derivative is triggered, the investor purchase the second $10,000,000 note for an amount in excess of its fair value (which is about $7,100,000 based on a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4e87b1f9982244b6a28ecf196b97d0325627688bc091cf577c13ed00b6873862","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-135","para":"55-135","html":"
As demonstrated by this Case, if an embedded derivative requires an asset to be purchased for an amount that exceeds its fair value, the amount of the excess—and not the cash flows related to the purchased asset—shall be considered when analyzing whether the hybrid instrument can contractually be settled in such a way that the investor would not recover substantially all of its initial recorded investment under paragraph 815-15-25-26(a). Whether that purchased asset is a financial asset or a nonfinancial asset (such as gold) is not relevant to the treatment of the excess purchase price. It is noted that requiring the investor to make a cash payment to the issuer is also economically equivalent to reducing the principal on the note.
","snippet":"As demonstrated by this Case, if an embedded derivative requires an asset to be purchased for an amount that exceeds its fair value, the amount of the excess—and not the cash flows related to the purchased asset—shall be…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:132b71e954a3bf6fae9d063261ed0f1e4514717e54e5cc991fd1cb05c6e4639c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-136","para":"55-136","html":"
The note described could have been structured to include terms requiring that the principal of the note be substantially reduced and the coupon reduced to zero if the interest rate for A-rated debt increased to at least 10 percent at the end of 2 years. That alternative structure would clearly have required that the embedded derivative be accounted for separately, because that embedded derivative's existence would have resulted in the possibility that the hybrid instrument could contractually be settled in such a way that the investor would not recover substantially all of its initial recorded investment.
","snippet":"The note described could have been structured to include terms requiring that the principal of the note be substantially reduced and the coupon reduced to zero if the interest rate for A-rated debt increased to at least …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:168ae2d1335e539913f6b746dabd862ba284660483fe3b8b0d6fcac44ae2d600","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-137","para":"55-137","html":"
The following Cases illustrate the application of the guidance beginning in paragraph 815-15-25-26(b) to specific securitized interests in prepayable financial assets:
  1. a
    Securitized pool of guaranteed single-class mortgage pass-through securities (Case A)
  2. b
    Securitized pool of guaranteed single-class mortgage pass-through securities (Case B)
  3. c
    Inverse floater collateralized mortgage obligation (Case C).
","snippet":"The following Cases illustrate the application of the guidance beginning in paragraph 815-15-25-26(b) to specific securitized interests in prepayable financial assets:\n(a) Securitized pool of guaranteed single-class mort…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:404bede3770b89e6df27f76cdece61865a2ebe36fc503fb08e3105f28da47528","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-138","para":"55-138","html":"
The Cases provide no discussion of the requirements of paragraphs 815-15-25-1 and 815-15-25-26(a). However, an analysis of those paragraphs would be required to determine whether the instruments meet the criterion in paragraph 815-15-25-26(b). The analysis of the Cases considers only paragraph 815-15-25-26(b).
","snippet":"The Cases provide no discussion of the requirements of paragraphs 815-15-25-1 and 815-15-25-26(a). However, an analysis of those paragraphs would be required to determine whether the instruments meet the criterion in par…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3f69023207e8174d0f907646659c710a9a2f6a741e51fa989b926a62ef1f0e8b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-139","para":"55-139","html":"
The following Cases illustrate application of the guidance in paragraph 815-15-25-26(b) to a guaranteed single-class mortgage pass-through security:
  1. a
    Guaranteed single-class mortgage pass-through security (Case A1)
  2. b
    Securitization trust includes a freestanding derivative instrument (Case A2).
","snippet":"The following Cases illustrate application of the guidance in paragraph 815-15-25-26(b) to a guaranteed single-class mortgage pass-through security:\n(a) Guaranteed single-class mortgage pass-through security (Case A1)\n(b…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6775d16ef06d762ea87ae073353c87ef5da39c08edd9f4003e34fd0f17fcca40","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-140","para":"55-140","html":"
Cases A1 and A2 share all of the following assumptions:
  1. a
    A fixed-rate guaranteed single-class mortgage pass-through security is issued.
  2. b
    Both the interest and principal payments are guaranteed by a third party for a fixed market-based guarantee fee, and a servicer receives a market-based servicing fee that is expected to be more than adequate compensation.
  3. c
    Both the guarantee fee and the servicing fee have priority over the payments to the investors.
  4. d
    The investor does not have the right to accelerate the settlement of the securitized interest.
","snippet":"Cases A1 and A2 share all of the following assumptions:\n(a) A fixed-rate guaranteed single-class mortgage pass-through security is issued.\n(b) Both the interest and principal payments are guaranteed by a third party for …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ad08f3f080bd78d86954efaaa20554ae3b736a566ec34b6d1bbfefd9090c7f13","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-141","para":"55-141","html":"
Under the security, the net cash flows received on the underlying fixed-rate, prepayable, single-family mortgage loans are proportionately passed through to the investors.
","snippet":"Under the security, the net cash flows received on the underlying fixed-rate, prepayable, single-family mortgage loans are proportionately passed through to the investors.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a117fbff2e447c5341b6decaa21f1b7fbd16ac044c5270d731c195d22f048e74","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-142","para":"55-142","html":"
Paragraph 815-15-25-26(b) does not apply to the guaranteed single-class mortgage pass-through security described in the common assumptions and the preceding paragraph. While the priority of the payments to the guarantor and servicer reallocates the cash flows, the example security meets the two criteria in paragraph 815-15-25-26(b).
","snippet":"Paragraph 815-15-25-26(b) does not apply to the guaranteed single-class mortgage pass-through security described in the common assumptions and the preceding paragraph. While the priority of the payments to the guarantor …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5aaf021c51333464a1fc9e0169f63a03657676cd560bd6b960355eb9ae0a5722","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-143","para":"55-143","html":"
Under the security, the underlying prepayable single-family mortgage loans have a variable interest rate. The securitization trust also holds an interest rate swap that is designed to perfectly swap the variable interest rate assets to a fixed interest rate to match the payments on the fixed-rate guaranteed single-class mortgage pass-through security.
","snippet":"Under the security, the underlying prepayable single-family mortgage loans have a variable interest rate. The securitization trust also holds an interest rate swap that is designed to perfectly swap the variable interest…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a5dd3bf72bcf2b017a42ce87fe75135f7a7a1e7adec5cbbafd02270801d456fc","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-144","para":"55-144","html":"
Paragraph 815-15-25-26(b) is not applicable to the guaranteed single-class mortgage pass-through security. Because the addition of the freestanding derivative instrument (the interest rate swap) does not create an embedded derivative that requires bifurcation in the guaranteed single-class mortgage pass-through security itself, the example security meets the two criteria in that paragraph. However, if the notional amounts of the securitized loans and the interest rate swap do not match, the fixed-rate securitized interest would have to be evaluated for an embedded derivative because the financial instruments held by the entity might not provide the necessary cash flows.
","snippet":"Paragraph 815-15-25-26(b) is not applicable to the guaranteed single-class mortgage pass-through security. Because the addition of the freestanding derivative instrument (the interest rate swap) does not create an embedd…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a94ec916833841c4627ef31467b1128ddd9465c90b9ec521003608b96a01d338","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-145","para":"55-145","html":"
The following Cases illustrate application of paragraph 815-15-25-26(b) to an interest in a securitized pool of guaranteed single-class mortgage pass-through securities:
  1. a
    Sequential-pay collateralized mortgage obligation (Case B1)
  2. b
    Planned-amortization-class and companion collateralized mortgage obligation (Case B2)
  3. c
    Interest-only strip and principal-only strip (Case B3).
","snippet":"The following Cases illustrate application of paragraph 815-15-25-26(b) to an interest in a securitized pool of guaranteed single-class mortgage pass-through securities:\n(a) Sequential-pay collateralized mortgage obligat…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5e8a1808c409ff4ad31fac4c1befd5144d52a7a309b085d164acd27a3c82e706","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-146","para":"55-146","html":"
Cases B1, B2, and B3 share the assumption that an entity securitizes a pool of guaranteed single-class mortgage pass-through securities (each identical to those described in the common assumptions in Case A).
","snippet":"Cases B1, B2, and B3 share the assumption that an entity securitizes a pool of guaranteed single-class mortgage pass-through securities (each identical to those described in the common assumptions in Case A).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:63d30d4924a9d81423a3822224477bb585375b0f484d4f536a725c0be17d0142","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-147","para":"55-147","html":"
This Case assumes that the principal payments received, including prepayments of principal, on the underlying collateral are not allocated proportionately to all investors (bond holders). Three classes of securities are issued, Class A, Class B, and Class C, which mature sequentially. All three classes participate in interest payments from the underlying collateral, but, initially, only Class A receives principal payments. Class A receives all principal payments, including prepayments of principal, until it is retired. Next, all principal payments are paid to Class B until it is retired, and so on. Additionally, the investor does not have the right to accelerate the settlement of the securitized interest.
","snippet":"This Case assumes that the principal payments received, including prepayments of principal, on the underlying collateral are not allocated proportionately to all investors (bond holders). Three classes of securities are …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a88d4454bb986ff3b613232c438d2e473a21fd019a8b0946fde1bbe56b30b892","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-148","para":"55-148","html":"
The analysis of the bonds requires the holder to assess the securitized interest in accordance with the criterion in paragraph 815-15-25-33(b). To determine whether the individual bond classes contain an embedded derivative that requires bifurcation, the investor would have to understand the nature and amount of assets, liabilities, and other financial instruments that compose the entire securitization transaction. The holder should obtain sufficient information about the payoff structure and the payment priority of the interest to determine whether an embedded derivative that requires bifurcation exists. Because the securitized interests (assumed to be identical to those described in Case A) included in the resecuritization do not contain any embedded derivatives and there have been no other changes in the cash flows that create other embedded derivatives that require bifurcation, the criterion in paragraph 815-15-25-33(b) is met.
","snippet":"The analysis of the bonds requires the holder to assess the securitized interest in accordance with the criterion in paragraph 815-15-25-33(b). To determine whether the individual bond classes contain an embedded derivat…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0d36a10a60a68949550359a087fb4f8ce094d3d4af3276033a35a05038bb3523","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-149","para":"55-149","html":"
Paragraph 815-15-25-26(b) is not applicable to any of the bond classes in the sequential-pay collateralized mortgage obligation. While the prepayment risk in the underlying financial assets is reallocated through the securitization process, concentrating prepayment risk in certain bond classes, all three classes in the Case meet the two criteria in paragraph 815-15-25-33.
","snippet":"Paragraph 815-15-25-26(b) is not applicable to any of the bond classes in the sequential-pay collateralized mortgage obligation. While the prepayment risk in the underlying financial assets is reallocated through the sec…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ad2f76a80304ece4fd39f4a03b569a5f6662547cafb9cec91549e3b522dd71f2","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-150","para":"55-150","html":"
Case B assumes that the principal payments received, including prepayments of principal, on the underlying collateral are not allocated proportionately to all investors (bond holders). Two classes of securities are issued, a planned-amortization-class bond and a companion bond. The planned-amortization-class bond is designed to reduce the prepayment risk to investors by transferring prepayment risk to the companion bond. The planned-amortization-class bond offers a fixed principal repayment schedule that will be met if prepayment on the underlying collateral is within a specified range. Additionally, the investor does not have the right to accelerate the settlement of the securitized interest.
","snippet":"Case B assumes that the principal payments received, including prepayments of principal, on the underlying collateral are not allocated proportionately to all investors (bond holders). Two classes of securities are issue…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f73d905b5cadc7e3a2021659071e3d53ff1c769188711f0572c598fb7123b4b0","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-151","para":"55-151","html":"
The analysis of the bonds requires the holder to assess the securitized interest in accordance with the criterion in paragraph 815-15-25-33(b). To determine whether the individual bond classes contain an embedded derivative that requires bifurcation, the investor would have to understand the nature and amount of assets, liabilities, and other financial instruments that compose the entire securitization transaction. The holder should obtain sufficient information about the payoff structure and the payment priority of the interest to determine whether an embedded derivative that requires bifurcation exists. Because the securitized interests (assumed to be identical to those described in Case A) included in the resecuritization do not contain any embedded derivatives and there have been no other changes in the cash flows that create other embedded derivatives that require bifurcation, the criterion in paragraph 815-15-25-33(b) is met.
","snippet":"The analysis of the bonds requires the holder to assess the securitized interest in accordance with the criterion in paragraph 815-15-25-33(b). To determine whether the individual bond classes contain an embedded derivat…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a406956dc71968fdee688dd2c92dac4adfa80a3c509dc765a43f989b0f29fa41","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-152","para":"55-152","html":"
Paragraph 815-15-25-26(b) is not applicable to either the planned-amortization-class or the companion collateralized mortgage obligation. While the prepayment risk in the underlying prepayable financial assets is reallocated through the securitization process, concentrating prepayment risk in the companion bond, the example securities meet the two criteria in paragraph 815-15-25-33.
","snippet":"Paragraph 815-15-25-26(b) is not applicable to either the planned-amortization-class or the companion collateralized mortgage obligation. While the prepayment risk in the underlying prepayable financial assets is realloc…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bfe6ed9e1e7bdd82a05ccdd2f7ae9241b1950ec6886d858cb1e1befef22fecda","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-153","para":"55-153","html":"
An interest-only strip and principal-only strip are created by separating the net interest cash flows from the principal cash flows received on a pool of guaranteed single-class mortgage pass-through securities (identical to those described in Case A). The interest cash flows form one bond, which is the interest-only strip. The principal cash flows form the second bond, which is the principal-only strip. Additionally, the investor does not have the right to accelerate the settlement of the securitized interest.
","snippet":"An interest-only strip and principal-only strip are created by separating the net interest cash flows from the principal cash flows received on a pool of guaranteed single-class mortgage pass-through securities (identica…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:83869f3139e792be8f46395a9cb7100507ec191d479611a841e67b65462d2039","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-154","para":"55-154","html":"
As a result of the guarantee fee and the servicing fee in excess of adequate compensation in the underlying guaranteed single-class mortgage pass-through securities, neither the interest-only strip nor the principal-only strip qualifies for the scope exception in paragraphs
815-10-15-72 through 15-73
.
","snippet":"As a result of the guarantee fee and the servicing fee in excess of adequate compensation in the underlying guaranteed single-class mortgage pass-through securities, neither the interest-only strip nor the principal-only…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e3b0b7ec420791ff72e9d8809673a7ad15ace2405df3d58de5f044587fc82a2b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-155","para":"55-155","html":"
The analysis of the interest-only and principal-only strip requires the holder to assess the securitized interest in accordance with the criterion in paragraph 815-15-25-33(b). To determine whether the individual bond classes contain an embedded derivative that requires bifurcation, the investor would have to understand the nature and amount of assets, liabilities, and other financial instruments that compose the entire securitization transaction. The holder should obtain sufficient information about the payoff structure and the payment priority of the interest to determine whether an embedded derivative that requires bifurcation exists. Because the securitized interests (assumed to be identical to those described in Case A) included in the resecuritization do not contain any embedded derivatives and there have been no other changes in the cash flows that create other embedded derivatives that require bifurcation, the criterion in paragraph 815-15-25-33(b) is met.
","snippet":"The analysis of the interest-only and principal-only strip requires the holder to assess the securitized interest in accordance with the criterion in paragraph 815-15-25-33(b). To determine whether the individual bond cl…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:88c46f49249a31b2caa5915eacde9a2c949aaf040d528966092689ee37c8e37c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-156","para":"55-156","html":"
Paragraph 815-15-25-26(b) is not applicable to either the interest-only strip or the principal-only strip. While the prepayment risk in the underlying prepayable financial assets is reallocated through the securitization process, concentrating prepayment risk in certain bond classes, both the interest-only strip and principal-only strip in the example meet the two criteria in paragraph 815-15-25-33.
","snippet":"Paragraph 815-15-25-26(b) is not applicable to either the interest-only strip or the principal-only strip. While the prepayment risk in the underlying prepayable financial assets is reallocated through the securitization…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ebedc4279a25188ad705c0d5e117cf1a2e1b123ad2ff6f5efbbbe5be973b8983","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-157","para":"55-157","html":"
A collateralized mortgage obligation is issued with a coupon that fluctuates inversely with a referenced rate. The underlying securitized financial assets are fixed-rate, prepayable, single-family mortgage loans. Two classes of securitized interests are issued, one with a coupon based on a referenced rate (for example, the London Interbank Offered Rate [LIBOR]) and the second with a coupon that fluctuates inversely with that same referenced rate (the inverse floater collateralized mortgage obligation). Cash flows received on the underlying collateral are first used to pay a servicer a market-based servicing fee that is expected to be more than adequate compensation. Additionally, the investor does not have the right to accelerate the settlement of the securitized interest.
","snippet":"A collateralized mortgage obligation is issued with a coupon that fluctuates inversely with a referenced rate. The underlying securitized financial assets are fixed-rate, prepayable, single-family mortgage loans. Two cla…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:174dd83759c37cbf84d415b5eaa6c4bbdd3e5334c370b341b76f1b9f83c6ffb7","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-158","para":"55-158","html":"
Paragraph 815-15-25-26(b) would be applicable to the inverse floater. When assessing the conditions in that paragraph, the holder shall consider the effect of prepayment risk. Therefore, the holder may identify both an embedded derivative related to the prepayment risk and an embedded derivative related to the inverse interest rate risk, which would be combined and recorded as one instrument.
","snippet":"Paragraph 815-15-25-26(b) would be applicable to the inverse floater. When assessing the conditions in that paragraph, the holder shall consider the effect of prepayment risk. Therefore, the holder may identify both an e…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:392245062ff379277564de48df60d96883ce7231e0abff4e66d11024d967287d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-159","para":"55-159","html":"
While the inverse floater collateralized mortgage obligation meets the criterion in paragraph 815-15-25-33(a), the fact that the coupon rate fluctuates inversely with the referenced rate results in the instrument failing the criterion in paragraph 815-15-25-33(b). The inverse floater contains an embedded interest rate derivative that requires bifurcation, and that embedded interest rate derivative does not result solely from the embedded call options in the underlying financial assets. Said another way, the inverse floater meets the conditions of paragraph 815-15-25-26(b) without consideration of the prepayment risk in the underlying mortgage loans.
","snippet":"While the inverse floater collateralized mortgage obligation meets the criterion in paragraph 815-15-25-33(a), the fact that the coupon rate fluctuates inversely with the referenced rate results in the instrument failing…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:df7eaa15bd09f4ef6d323cf1abd2966f4c3e03db9a92a54735968fcba1e3b477","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-160","para":"55-160","html":"
This Example illustrates the application of paragraph 815-15-30-4 and assumes that the illustrative non-option embedded derivative is a plain-vanilla forward contract with symmetrical risk exposure and that the hybrid instrument was newly entered into by the parties to the contract. Assume that the hybrid instrument is not a derivative instrument in its entirety.
","snippet":"This Example illustrates the application of paragraph 815-15-30-4 and assumes that the illustrative non-option embedded derivative is a plain-vanilla forward contract with symmetrical risk exposure and that the hybrid in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:31d061ba9c212bd2482857199662dc16820988c47eb8113d6efb6bba0f37f5d6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-161","para":"55-161","html":"
Entity A plans to advance Entity X $900 for 1 year at a 6 percent interest rate and concurrently enter into an equity-based derivative instrument in which it will receive any increase or pay any decrease in the current market price ($200) of XYZ Corporation's common stock. Those two transactions (that is, the loan and the derivative instrument) can be bundled in a structured note that could have almost an infinite variety of terms. The following presents 5 possible contractual terms for the structured note that would be purchased by Entity A for $900:
  1. a
    Note 1: Entity A is entitled to receive at the end of 1 year $954 plus any excess (or minus any shortfall) of the current per-share market price of XYZ Corporation's common stock over (or under) $200.
  2. b
    Note 2: Entity A is entitled to receive at the end of 1 year $955 plus any excess (or minus any shortfall) of the current per-share market price of XYZ Corporation's common stock over (or under) $201.
  3. c
    Note 3: Entity A is entitled to receive at the end of 1 year $755 plus any excess (or minus any shortfall) of the current per-share market price of XYZ Corporation's common stock over (or under) $1.
  4. d
    Note 4: Entity A is entitled to receive at the end of 1 year $1,054 plus any excess (or minus any shortfall) of the current per-share market price of XYZ Corporation's common stock over (or under) $300.
  5. e
    Note 5: Entity A is entitled to receive at the end of 1 year $1,060 plus any excess (or minus any shortfall) of the current per-share market price of XYZ Corporation's common stock over (or under) $306.
","snippet":"Entity A plans to advance Entity X $900 for 1 year at a 6 percent interest rate and concurrently enter into an equity-based derivative instrument in which it will receive any increase or pay any decrease in the current m…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4d1b4fd4f2ddab581b0ffe3df54c8b25801b82f6526dbddd7352979d7f568225","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-162","para":"55-162","html":"
All of these five terms of a structured note will provide the same cash flows, given a specified market price of XYZ Corporation's common stock. If the market price of XYZ Corporation's common stock at the end of 1 year is still $200, Entity A will receive $954 under all 5 note terms. If the market price of XYZ Corporation's common stock at the end of 1 year increases to $306, Entity A will receive $1,060 under all 5 note terms.
","snippet":"All of these five terms of a structured note will provide the same cash flows, given a specified market price of XYZ Corporation's common stock. If the market price of XYZ Corporation's common stock at the end of 1 year …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:57dccbf75cee791523703b91385cf9f8c53f799fa6a9fcce8e1b13d2edfa9a4d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-163","para":"55-163","html":"
For simplicity in constructing this Example, it is assumed that an equity-based cash-settled forward contract with a strike price equal to the stock's current market price has a zero fair value. In many circumstances, a zero-value forward contract can have a strike price greater or less than the stock's current market price.
","snippet":"For simplicity in constructing this Example, it is assumed that an equity-based cash-settled forward contract with a strike price equal to the stock's current market price has a zero fair value. In many circumstances, a …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:aa71a9f7e91fc499bf0cc801afdcbc1fd39e30303ef031a8b4f5104045aba503","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-164","para":"55-164","html":"
The differences in the terms for these five notes are totally arbitrary because those differences have no effect on the ultimate cash flows under the structured note; thus, those differences are nonsubstantive and should have no influence on how the terms of an embedded derivative are identified. Therefore, the separation of the hybrid instrument into an embedded derivative and a host debt instrument should be the same for all five terms described above for the structured note (because they are merely different descriptions of the same ultimate cash flows). That bifurcation would generally result in the structured note being accounted for as a debt host contract with an initial carrying amount of $900 and a fixed annual rate of interest of 6 percent and an embedded forward contract with a $200 forward price, which results in an initial fair value of zero. Instead, if the five notes were bifurcated based on all their contractual terms, such bifurcation would be the equivalent of simply marking an arbitrary portion of a debt instrument to market based on nonsubstantive arbitrary differences in those contractual terms—an inappropriate outcome.
","snippet":"The differences in the terms for these five notes are totally arbitrary because those differences have no effect on the ultimate cash flows under the structured note; thus, those differences are nonsubstantive and should…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:863a760217d25d0d6ae54640452fdf8c76d35beaccaba9e0840da72f1cc20058","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-165","para":"55-165","html":"
The following Cases illustrate the application of the guidance in this Subtopic to instruments that contain a variety of embedded derivatives:
  1. a
    Inverse floater (Case A)
  2. b
    Levered inverse floater (Case B)
  3. c
    Delevered floater (Case C)
  4. d
    Range floater (Case D)
  5. e
    Ratchet floater (Case E)
  6. f
    Fixed-to-variable note (Case F)
  7. g
    Indexed amortizing note (Case G)
  8. h
    Equity-indexed note (Case H)
  9. i
    Variable principal redemption bond (Case I)
  10. j
    Crude oil knock-in note (Case J)
  11. k
    Gold-linked bull note (Case K)
  12. l
    Step-up bond (Case L)
  13. m
    Credit-sensitive bond (Case M)
  14. n
    Inflation bond (Case N)
  15. o
    Disaster bond (Case O)
  16. p
    Specific equity-linked bond (Case P)
  17. q
    Dual currency bond (Case Q)
  18. r
    Short-term loan with a foreign currency option (Case R)
  19. s
    Lease payment in foreign currency (Case S)
  20. t
    Certain purchases in a foreign currency (Case T)
  21. u
    Convertible debt (Case U)
  22. v
    Dollar-denominated variable-rate interest issued by a special-purpose entity that holds yen-denominated variable-rate bonds and a cross-currency swap (Case V)
  23. w
    Variable-rate interest issued by a special-purpose entity that holds fixed-rate bonds and a pay-fixed, receive-variable interest rate swap (Case W)
  24. x
    Securitization involving subordination and variable-rate tranches (Case X)
  25. y
    Securitization involving subordination and fixed-rate tranches (Case Y)
  26. z
    Partially funded synthetic collateralized debt obligation with multiple tranches (Case Z)
  27. aa
    Fully funded synthetic collateralized debt obligation with multiple tranches (Case AA)
  28. ab
    Fully funded synthetic collateralized debt obligation with a single-tranche structure (Case AB).
","snippet":"The following Cases illustrate the application of the guidance in this Subtopic to instruments that contain a variety of embedded derivatives:\n(a) Inverse floater (Case A)\n(b) Levered inverse floater (Case B)\n(c) Delever…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:07c8426cef43311f73a1882ce0bd47a617835fbd1a791c9d9c5a2d7fa6bef699","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-166","para":"55-166","html":"
Cases A through AB illustrate how the guidance in this Subtopic would be applied to contracts with the described terms. If the terms of a contract are different from the described terms, the application of this Subtopic by either party to the contract may be affected. Furthermore, if any contract of the types discussed in Cases A through AB meets the definition of a derivative instrument in its entirety under paragraphs
815-10-15-83 through 15-139
, the guidance for the application of the provisions of this Subtopic to embedded derivatives does not apply.
","snippet":"Cases A through AB illustrate how the guidance in this Subtopic would be applied to contracts with the described terms. If the terms of a contract are different from the described terms, the application of this Subtopic …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:60ceae0c54018d35ab3cdcc3c068b721498726c874816679966e49eb18a6a83e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-167","para":"55-167","html":"
The illustrative instruments and related assumptions in Cases A through P are based on structured notes illustrated in paragraph 320-10-55-10.
","snippet":"The illustrative instruments and related assumptions in Cases A through P are based on structured notes illustrated in paragraph 320-10-55-10.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:10d5e1bae04f88f1e289dce0f36fe69b31999324405a48b853d99af8390fd21c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-168","para":"55-168","html":"
Specifically, each Case does both of the following:
  1. a
    Provides a brief discussion of the terms of an instrument that contains an embedded derivative
  2. b
    Analyzes the instrument (as of the date of inception) in relation to the provisions of this Subtopic that require an embedded derivative to be accounted for according to this Subtopic if it is not clearly and closely related to the host contract.
","snippet":"Specifically, each Case does both of the following:\n(a) Provides a brief discussion of the terms of an instrument that contains an embedded derivative\n(b) Analyzes the instrument (as of the date of inception) in relation…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:84e7d2e1df97fa50cc119054f1cf3203ae024df90aeac8cf51e7b131a5118270","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-169","para":"55-169","html":"
Unless otherwise stated, Cases A through AB share both of the following assumptions:
  1. a
    If the embedded derivative and host portions of the contract are not clearly and closely related, a separate instrument with the same terms as the embedded derivative would meet the scope requirements in Section 815-10-15.
  2. b
    The contract is not remeasured at fair value under otherwise applicable GAAP with changes in fair value currently included in earnings.
","snippet":"Unless otherwise stated, Cases A through AB share both of the following assumptions:\n(a) If the embedded derivative and host portions of the contract are not clearly and closely related, a separate instrument with the sa…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:78984ee51f3a697ea547ea6ece2a0758b64d32ce44b313ca12b31c154ee16d01","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-170","para":"55-170","html":"
An inverse floater is a bond with a coupon rate of interest that varies inversely with changes in specified general interest rate levels or indexes, for example, LIBOR.
","snippet":"An inverse floater is a bond with a coupon rate of interest that varies inversely with changes in specified general interest rate levels or indexes, for example, LIBOR.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e34d53138182035c9283fdbc84a27ed2d5fb2705a282c4b125cc06c64acc622e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-171","para":"55-171","html":"
Assume the coupon is 5.25 percent for 3 months to July 1994 and thereafter at 8.75 percent-6-month U.S. dollar (USD) LIBOR to January 1995. Assume the bond includes a stepping option that allows for spread and caps to step semiannually to maturity.
","snippet":"Assume the coupon is 5.25 percent for 3 months to July 1994 and thereafter at 8.75 percent-6-month U.S. dollar (USD) LIBOR to January 1995. Assume the bond includes a stepping option that allows for spread and caps to st…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a37a5da334c687ef8db03700778ece4b4c78694a2c4abe33a51c010d4b38410b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-172","para":"55-172","html":"
An inverse floater contains an embedded derivative (a fixed-for-variable interest rate swap) that is referenced to an interest rate index (in this circumstance, LIBOR) that alters net interest payments that otherwise would be paid by the debtor or received by the investor on an interest-bearing host contract. If the embedded derivative could potentially result in the investor's not recovering substantially all of its initial recorded investment in the bond (that is, if the inverse floater contains no floor to prevent any erosion of principal due to a negative interest rate), the embedded derivative is not considered to be clearly and closely related to the host contract (see paragraph 815-15-25-26[a]). In that circumstance, the embedded derivative should be separated from the host contract and accounted for by both parties pursuant to the provisions of this Subtopic. (In this Case, there appears to be no possibility of the embedded derivative increasing the investor's rate of return on the host contract to an amount that is at least double the initial rate of return on the host contract [see paragraph 815-15-25-26(b)].) In contrast, if the embedded derivative could not potentially result in the investor's failing to recover substantially all of its initial recorded investment in the bond, the embedded derivative is considered to be clearly and closely related to the host contract and separate accounting for the derivative is neither required nor permitted.
","snippet":"An inverse floater contains an embedded derivative (a fixed-for-variable interest rate swap) that is referenced to an interest rate index (in this circumstance, LIBOR) that alters net interest payments that otherwise wou…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2012312a8ae21cee0d6c83ffc3b4215766e92b06a45cc5ada46fd843ccede78f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-173","para":"55-173","html":"
A levered inverse floater is a bond with a coupon that varies indirectly with changes in general interest rate levels and applies a multiplier (greater than 1.00) to the specified index in its calculation of interest.
","snippet":"A levered inverse floater is a bond with a coupon that varies indirectly with changes in general interest rate levels and applies a multiplier (greater than 1.00) to the specified index in its calculation of interest.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e1cfd96d00da9073365231cc006c643047f254ce2137fa81fbf0e27be804d0df","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-174","para":"55-174","html":"
Assume that interest accrues at 6 percent to June 1994 and thereafter at 14.55 percent-(2.5x 3-month USD LIBOR).
","snippet":"Assume that interest accrues at 6 percent to June 1994 and thereafter at 14.55 percent-(2.5x 3-month USD LIBOR).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0e1b151636a1615c260e1b761c59888443deb870d9262ad5f63922b2c12eddf9","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-175","para":"55-175","html":"
A levered inverse floater can be viewed as an inverse floater in which the embedded interest rate swap is leveraged. Similar to Case A, the embedded derivative would not be clearly and closely related to the host contract if it potentially could result in the investor's not recovering substantially all of its initial recorded investment in the bond (see paragraph 815-15-25-26[a]) because there is no floor to the interest rate. In that circumstance, the embedded derivative (the leveraged interest rate swap) should be separated from the host contract and accounted for by both parties pursuant to the provisions of Subtopic. In contrast, if an embedded derivative could not potentially result in the investor's failing to recover substantially all of its initial recorded investment in the bond and if there was no possibility of the embedded derivative increasing the investor's rate of return on the host contract to an amount that is at least double the initial rate of return on the host contract (see paragraph 815-15-25-26[b]), the embedded derivative is considered to be clearly and closely related to the host contract and no separate accounting for the derivative is required or permitted.
","snippet":"A levered inverse floater can be viewed as an inverse floater in which the embedded interest rate swap is leveraged. Similar to Case A, the embedded derivative would not be clearly and closely related to the host contrac…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cb71fc576b5d77934d70a1a19ccb27f1401fd3ca7daf7d3ad3c8587ee3dca958","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-176","para":"55-176","html":"
A delevered floater is a bond with a coupon rate of interest that lags overall movements in specified general interest rate levels or indexes.
","snippet":"A delevered floater is a bond with a coupon rate of interest that lags overall movements in specified general interest rate levels or indexes.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0ea20494269dad4f5d8131fc420b6d37ce56340fcfacaad3234fc71e6f64a6d0","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-177","para":"55-177","html":"
Assume that the coupon is (.5x 10-year U.S. Treasury constant maturities) + 1.25 percent.
","snippet":"Assume that the coupon is (.5x 10-year U.S. Treasury constant maturities) + 1.25 percent.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fc7beda7f3109aa58759745ae0f3fc97910ae4c6221cb091faf8ef844e1c34a9","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-178","para":"55-178","html":"
A delevered floater may be viewed as containing an embedded derivative (a deleveraged swap or a series of forward contracts) that is referenced to an interest rate index (for example, 50 percent of 10-year U.S. Treasury constant maturities) that alters net interest payments that otherwise would be paid or received on an interest-bearing host contract but could not potentially result in the investor's failing to recover substantially all of its initial recorded investment in the bond (see paragraph 815-15-25-26[a]). (In this circumstance, there appears to be no possibility of the embedded derivative increasing the investor's rate of return on the host contract to an amount that is at least double the initial rate of return on the host contract [see paragraph 815-15-25-26(b)].) The embedded derivative is considered to be clearly and closely related to the host contract as described in paragraph 815-15-25-26. Therefore, the embedded derivative should not be separated from the host contract.
","snippet":"A delevered floater may be viewed as containing an embedded derivative (a deleveraged swap or a series of forward contracts) that is referenced to an interest rate index (for example, 50 percent of 10-year U.S. Treasury …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:47c784d8768ad145217887f25bc9c0ff4931f888dbff04e8e3c3ce382b52c009","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-179","para":"55-179","html":"
A range floater is a bond with a coupon that depends on the number of days that a reference rate stays within a preestablished collar; otherwise, the bond pays either zero percent interest or a below-market rate.
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Assume the investor receives 5.5 percent on each day that 3-month USD LIBOR is between 3 percent and 4 percent, with the upper limit increasing annually after a specified date. The coupon will be equal to 0 percent for each day that 3-month USD LIBOR is outside that range.
","snippet":"Assume the investor receives 5.5 percent on each day that 3-month USD LIBOR is between 3 percent and 4 percent, with the upper limit increasing annually after a specified date. The coupon will be equal to 0 percent for e…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:983d913af508fd05c70a265adbdf9b81866816cd35d9abd91ee41dac8ed06980","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-181","para":"55-181","html":"
A range floater may be viewed as containing embedded derivatives (two written conditional exchange option contracts with notional amounts equal to the par value of the fixed-rate instrument) that are referenced to an interest rate index (in this instance, LIBOR) that alter net interest payments that otherwise would be paid by the debtor or received by the investor on an interest-bearing host contract but could not potentially result in the investor's failing to recover substantially all of its initial recorded investment in the bond (see paragraph 815-15-25-26[a]). In this instance, there appears to be no possibility of increasing the investor's rate of return on the host contract to an amount that is at least double the initial rate of return on the host contract (see paragraph 815-15-25-26[b]). The embedded derivatives are considered to be clearly and closely related to the host contract as described in paragraph 815-15-25-26. Therefore, the embedded derivatives should not be separated from the host contract.
","snippet":"A range floater may be viewed as containing embedded derivatives (two written conditional exchange option contracts with notional amounts equal to the par value of the fixed-rate instrument) that are referenced to an int…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ebf4a0f331c7a8aa9be0a169bc70309869b17eb16ac852da4251b807ef165e90","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-182","para":"55-182","html":"
A ratchet floater is a bond that pays a variable rate of interest and has an adjustable cap, adjustable floor, or both that move in sync with each new reset rate.
","snippet":"A ratchet floater is a bond that pays a variable rate of interest and has an adjustable cap, adjustable floor, or both that move in sync with each new reset rate.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4af61fd9dc68d1027278ff9cae30fa57af6c4d8c7bf2f5781e469a115569b372","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-183","para":"55-183","html":"
Assume the coupon is 3-month USD LIBOR + 50 basis points. In addition to having a lifetime cap of 7.25 percent, the coupon will be collared each period between the previous coupon and the previous coupon plus 25 basis points.
","snippet":"Assume the coupon is 3-month USD LIBOR + 50 basis points. In addition to having a lifetime cap of 7.25 percent, the coupon will be collared each period between the previous coupon and the previous coupon plus 25 basis po…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:48d65fe75843c5773680eef37de624ccd7aa131d4afaa7c2655b706cc49bdb9f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-184","para":"55-184","html":"
A ratchet floater may be viewed as containing embedded derivatives (combinations of purchased and written options that create changing caps and floors) that are referenced to an interest rate index (in this example, LIBOR) that alter net interest payments that otherwise would be paid by the debtor or received by the investor on an interest-bearing host contract but could not potentially result in the investor's failing to recover substantially all of its initial recorded investment in the bond (see paragraph 815-15-25-26[a]). In this Case, there appears to be no possibility of increasing the investor's rate of return on the host contract to an amount that is at least double the initial rate of return on the host contract (see paragraph 815-15-25-26[b]). The embedded derivatives are considered to be clearly and closely related to the host contract as described in paragraph 815-15-25-26. Therefore, the embedded derivatives should not be separated from the host contract.
","snippet":"A ratchet floater may be viewed as containing embedded derivatives (combinations of purchased and written options that create changing caps and floors) that are referenced to an interest rate index (in this example, LIBO…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:264ec7ba5393b7e49c05b284c7cb765d63b4393c01025c25045d66016e885ec4","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-185","para":"55-185","html":"
A fixed-to-variable note is a bond that pays a varying coupon (first-year coupon is fixed; second- and third-year coupons are based on LIBOR, U.S. Treasury bills, or a prime rate).
","snippet":"A fixed-to-variable note is a bond that pays a varying coupon (first-year coupon is fixed; second- and third-year coupons are based on LIBOR, U.S. Treasury bills, or a prime rate).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ef0f60eb667adafa642653d247afc73f48afc792a61c7d4503785f9d7127cc9a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-186","para":"55-186","html":"
A fixed-to-variable note may be viewed as containing an embedded derivative (a forward-starting interest rate swap) that is referenced to an interest rate index (such as LIBOR) that alters net interest payments that otherwise would be paid by the debtor or received by the investor on an interest-bearing host instrument but could not potentially result in the investor's failing to recover substantially all of its initial recorded investment in the bond (see paragraph 815-15-25-26[a]). Likewise, there is no possibility of increasing the investor's rate of return on the host contract to an amount that is both at least double the initial rate of return on the host contract and at least twice what otherwise would be the market return for a contract that has the same terms as the host contract and that involves a debtor with a similar credit quality (see paragraph 815-15-25-26[b]). The embedded derivative is considered to be clearly and closely related to the host contract as described in paragraph 815-15-25-26. Therefore, the embedded derivative should not be separated from the host contract.
","snippet":"A fixed-to-variable note may be viewed as containing an embedded derivative (a forward-starting interest rate swap) that is referenced to an interest rate index (such as LIBOR) that alters net interest payments that othe…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:93fe4226a8f292672e5657ba88db1efa6487e053801141590e7ad17ff58c5898","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-187","para":"55-187","html":"
An indexed amortizing note is a bond that repays principal based on a predetermined amortization schedule or target value. The amortization is linked to changes in a specific mortgage-backed security index or interest rate index. The maturity of the bond changes as the related index changes. This instrument includes a varying maturity. Assume that the contract does not meet the conditions in paragraph 815-15-25-26(a) or 815-15-25-26(b).
","snippet":"An indexed amortizing note is a bond that repays principal based on a predetermined amortization schedule or target value. The amortization is linked to changes in a specific mortgage-backed security index or interest ra…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:aeedd454ff1900ce693c1e96af07c5bef0fb46f664c4b7f12a337d7f44919cb2","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-188","para":"55-188","html":"
An indexed amortizing note can be viewed as a fixed-rate amortizing note combined with a conditional exchange option contract that requires partial or total early payment of the note based on changes in a specific mortgage-backed security index or a specified change in an interest rate index. Because the requirement to prepay is ultimately tied to changing interest rates, the embedded derivative is considered to be clearly and closely related to a fixed-rate note. Therefore, the embedded derivative should not be separated from the host contract.
","snippet":"An indexed amortizing note can be viewed as a fixed-rate amortizing note combined with a conditional exchange option contract that requires partial or total early payment of the note based on changes in a specific mortga…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6cd500d3d4802e4acd15bf8f560da35a33d9b19dbf859832dc4356db4b608500","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-189","para":"55-189","html":"
An equity-indexed note is a bond for which the return of interest, principal, or both is tied to a specified equity security or index, for instance, the Standard and Poor's 500 S&P 500 Index. This instrument may contain a fixed or varying coupon rate and may place all or a portion of principal at risk.
","snippet":"An equity-indexed note is a bond for which the return of interest, principal, or both is tied to a specified equity security or index, for instance, the Standard and Poor's 500 S&P 500 Index. This instrument may contain …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a24a7cd083ddaa3854ec684253a2fb836279b5c62bdab56f1d3838c91c19249b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-190","para":"55-190","html":"
An equity-indexed note essentially combines an interest-bearing instrument with a series of forward exchange contracts or option contracts. Often, a portion of the coupon interest rate is, in effect, used to purchase options that provide some form of floor on the potential loss of principal that would result from a decline in the referenced equity index. Because forward or option contracts for which the underlying is an equity index are not clearly and closely related to an investment in an interest-bearing note, those embedded derivatives should be separated from the host contract and accounted for by both parties pursuant to the provisions of this Subtopic.
","snippet":"An equity-indexed note essentially combines an interest-bearing instrument with a series of forward exchange contracts or option contracts. Often, a portion of the coupon interest rate is, in effect, used to purchase opt…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3b91c12719dc3497bd4fc22aa6668eab6b7e51eb73bbeb24c63799c219efbe54","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-191","para":"55-191","html":"
A variable principal redemption bond's principal redemption value at maturity depends on the change in an underlying index over a predetermined observation period. A typical circumstance would be a bond that guarantees a minimum par redemption value of 100 percent and provides the potential for a supplemental principal payment at maturity as compensation for the below-market rate of interest offered with the instrument.
","snippet":"A variable principal redemption bond's principal redemption value at maturity depends on the change in an underlying index over a predetermined observation period. A typical circumstance would be a bond that guarantees a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9c0d9bdd14358a2d39b4d794e31911ac794cd49d5ef0e3cf2cb357734e9a348b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-192","para":"55-192","html":"
Assume that a supplemental principal payment will be paid to the investor, at maturity, if the final S&P 500 closing value (determined at a specified date) is less than its initial value at date of issuance and the 10-year U.S. Treasury constant maturities is greater than 2 percent as of a specified date. In all circumstances, the minimum principal redemption will be 100 percent of par.
","snippet":"Assume that a supplemental principal payment will be paid to the investor, at maturity, if the final S&P 500 closing value (determined at a specified date) is less than its initial value at date of issuance and the 10-ye…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c5ae9b2dec21944ebccc04ba90bdefcdbf4e18f5435780cd8a42a5aca4e0b58c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-193","para":"55-193","html":"
A variable principal redemption bond essentially combines an interest-bearing investment with an option that is purchased with a portion of the bond's coupon interest payments. Because the embedded option entitling the investor to an additional return is partially contingent on the S&P 500 index closing above a specified amount, it is not clearly and closely related to an investment in a debt instrument. Therefore, the embedded option should be separated from the host contract and accounted for by both parties pursuant to the provisions of this Subtopic.
","snippet":"A variable principal redemption bond essentially combines an interest-bearing investment with an option that is purchased with a portion of the bond's coupon interest payments. Because the embedded option entitling the i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:dfc0d8382dc26e784f7b27d6d094cbb21d865accd5e07805880e388aa9a7e11d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-194","para":"55-194","html":"
An illustrative crude oil knock-in note has a 1 percent coupon and guarantees repayment of principal with upside potential based on the strength of the oil market.
","snippet":"An illustrative crude oil knock-in note has a 1 percent coupon and guarantees repayment of principal with upside potential based on the strength of the oil market.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:61436302b6b07a6101390de3597f920cd09da618213528700d48e658f49fe29a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-195","para":"55-195","html":"
A crude oil knock-in note essentially combines an interest-bearing instrument with a series of option contracts. A significant portion of the coupon interest rate is, in effect, used to purchase options that provide the investor with potential gains resulting from increases in specified crude oil prices. Because the option contracts are indexed to the price of crude oil, they are not clearly and closely related to an investment in an interest-bearing note. Therefore, the embedded option contract should be separated from the host contract and accounted for by both parties pursuant to the provisions of this Subtopic.
","snippet":"A crude oil knock-in note essentially combines an interest-bearing instrument with a series of option contracts. A significant portion of the coupon interest rate is, in effect, used to purchase options that provide the …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b6753297b8ce36b2d5142958a3804962d32578dfde785f01db976abe366879d0","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-196","para":"55-196","html":"
An illustrative gold-linked bull note has a fixed 3 percent coupon and guarantees repayment of principal with upside potential if the price of gold increases.
","snippet":"An illustrative gold-linked bull note has a fixed 3 percent coupon and guarantees repayment of principal with upside potential if the price of gold increases.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b11e57fc6cfa9cc62af17712c2eb35342abbc4c71149b926988b452a15ed5707","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-197","para":"55-197","html":"
A gold-linked bull note can be viewed as combining an interest-bearing instrument with a series of option contracts. A portion of the coupon interest rate is, in effect, used to purchase call options that provide the investor with potential gains resulting from increases in gold prices. Because the option contracts are indexed to the price of gold, they are not clearly and closely related to an investment in an interest-bearing note. Therefore, the embedded option contracts should be separated from the host contract and accounted for by both parties pursuant to the provisions of this Subtopic.
","snippet":"A gold-linked bull note can be viewed as combining an interest-bearing instrument with a series of option contracts. A portion of the coupon interest rate is, in effect, used to purchase call options that provide the inv…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:78dc06ebfe089605acd5c249114d11c38f648bbafba8a42af707d21a4e99ee3d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-198","para":"55-198","html":"
A step-up bond provides an introductory above-market yield and steps up to a new coupon, which will be below then-current market rates or, alternatively, the bond may be called in lieu of the step-up in the coupon rate.
","snippet":"A step-up bond provides an introductory above-market yield and steps up to a new coupon, which will be below then-current market rates or, alternatively, the bond may be called in lieu of the step-up in the coupon rate.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7304c1fc33f7f66895ca63f2adcddf99fa8e727b1a0b302e21f6e30e01120cee","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-199","para":"55-199","html":"
A step-up bond can be viewed as a fixed-rate bond with an embedded call option and a changing interest rate feature. The bond pays an initial above-market interest rate to compensate for the call option and the future below-market rate (that is, below the forward yield curve, as determined at issuance based on the existing upward-sloping yield curve). Because the call option is related to changes in interest rates, it is clearly and closely related to an investment in a fixed-rate bond. Therefore, the embedded derivatives should not be separated from the host contract.
","snippet":"A step-up bond can be viewed as a fixed-rate bond with an embedded call option and a changing interest rate feature. The bond pays an initial above-market interest rate to compensate for the call option and the future be…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b097ffaa0a50605df49379a3e7600586a474490182bf626a01a0ea4ba70f07a8","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-200","para":"55-200","html":"
A credit-sensitive bond has a coupon rate of interest that resets based on changes in the issuer's credit rating.
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A credit-sensitive bond can be viewed as combining a fixed-rate bond with a conditional exchange contract (or option contract) that entitles the investor to a higher rate of interest if the credit rating of the issuer declines. Because the creditworthiness of the debtor and the interest rate on a debt instrument are clearly and closely related, the embedded derivative should not be separated from the host contract.
","snippet":"A credit-sensitive bond can be viewed as combining a fixed-rate bond with a conditional exchange contract (or option contract) that entitles the investor to a higher rate of interest if the credit rating of the issuer de…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:04b85af2a788868d837921e19f639c3b933919821091f4b9f0049f6d79e4316e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-202","para":"55-202","html":"
An inflation bond has a contractual principal amount that is indexed to the inflation rate but cannot decrease below par; the coupon rate is typically below that of traditional bonds of similar maturity.
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An inflation bond can be viewed as a fixed-rate bond for which a portion of the coupon interest rate has been exchanged for a conditional exchange contract (or option contract) indexed to the consumer price index, or other index of inflation in the economic environment for the currency in which the bond is denominated, that entitles the investor to payment of additional principal based on increases in the referenced index. Such rates of inflation and interest rates on the debt instrument are considered to be clearly and closely related. Therefore, the embedded derivative should not be separated from the host contract.
","snippet":"An inflation bond can be viewed as a fixed-rate bond for which a portion of the coupon interest rate has been exchanged for a conditional exchange contract (or option contract) indexed to the consumer price index, or oth…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:eee1414fab72ce2a5199465be8fbb90089d251e2a646622d531e13529ec61559","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-204","para":"55-204","html":"
A disaster bond pays a coupon above that of an otherwise comparable traditional bond; however, all or a substantial portion of the principal amount is subject to loss if a specified disaster experience occurs.
","snippet":"A disaster bond pays a coupon above that of an otherwise comparable traditional bond; however, all or a substantial portion of the principal amount is subject to loss if a specified disaster experience occurs.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0becceade71b9f89db0d80b120d96530f3de589d2c200e4c93d72d580c6a527c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-205","para":"55-205","html":"
A disaster bond can be viewed as a fixed-rate bond combined with a conditional exchange contract (an option contract). The investor receives an additional coupon interest payment in return for giving the issuer an option indexed to industry loss experience on a specified disaster. Because the option contract is indexed to the specified disaster experience, it cannot be viewed as being clearly and closely related to an investment in a fixed-rate bond. Therefore, the embedded derivative should be separated from the host contract and accounted for by both parties pursuant to the provisions of this Subtopic.
","snippet":"A disaster bond can be viewed as a fixed-rate bond combined with a conditional exchange contract (an option contract). The investor receives an additional coupon interest payment in return for giving the issuer an option…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0f5c3f094df421bbd599e0d1fd0fe9359c10072e041e5ee8f5a6e3f6998fc9cd","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-206","para":"55-206","html":"
However, if the embedded derivative entitles the holder of the option (that is, the issuer of the disaster bond) to be compensated only for changes in the value of specified assets or liabilities for which the holder is at risk (including the liability for insurance claims payable due to the specified disaster) as a result of an identified insurable event (see paragraphs
815-10-15-53 through 15-54
), a separate instrument with the same terms as the embedded derivative would not meet the definition of a derivative instrument in Section 815-10-15. In that circumstance, because the criterion in paragraph 815-15-25-1(c) would not be met, there is no embedded derivative to be separated from the host contract, and the disaster bond would not be subject to the requirements of this Subtopic. The investor is essentially providing a form of insurance or reinsurance coverage to the issuer.
","snippet":"However, if the embedded derivative entitles the holder of the option (that is, the issuer of the disaster bond) to be compensated only for changes in the value of specified assets or liabilities for which the holder is …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b5f31b0d8090df0a2cf91b59008a86d6e71f67f6d37eae627009724d87cc5718","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-207","para":"55-207","html":"
A specific equity-linked bond pays a coupon slightly below that of traditional bonds of similar maturity; however, the principal amount is linked to the stock market performance of an equity investee of the issuer. The issuer may settle the obligation by delivering the shares of the equity investee or may deliver the equivalent fair value in cash.
","snippet":"A specific equity-linked bond pays a coupon slightly below that of traditional bonds of similar maturity; however, the principal amount is linked to the stock market performance of an equity investee of the issuer. The i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b675da5789aa621a669ed6e8d8ac7c8ba5ff48b7d9ea27e9bac5b86f82fa88ea","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-208","para":"55-208","html":"
A specific equity-linked bond can be viewed as combining an interest-bearing instrument with, depending on its terms, a series of forward exchange contracts or option contracts based on an equity instrument. Often, a portion of the coupon interest rate is used to purchase options that provide some form of floor on the loss of principal due to a decline in the price of the referenced equity instrument. The forward or option contracts do not qualify for the exception in paragraph 815-10-15-59(b) because the shares in the equity investee owned by the issuer meet the definition of a financial instrument. Because forward or option contracts for which the underlying is the price of a specific equity instrument are not clearly and closely related to an investment in an interest-bearing note, the embedded derivative should be separated from the host contract and accounted for by both parties pursuant to the provisions of this Subtopic.
","snippet":"A specific equity-linked bond can be viewed as combining an interest-bearing instrument with, depending on its terms, a series of forward exchange contracts or option contracts based on an equity instrument. Often, a por…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:933e32efb66881c874782ca3ce618c77c9c7d1ba1c681aa06fef28ddd05b8737","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-209","para":"55-209","html":"
A dual currency bond provides for repayment of principal in U.S. dollars and periodic interest payments denominated in a foreign currency. In this circumstance, a U.S. entity with the dollar as its functional currency is borrowing funds from an independent party with those repayment terms as described.
","snippet":"A dual currency bond provides for repayment of principal in U.S. dollars and periodic interest payments denominated in a foreign currency. In this circumstance, a U.S. entity with the dollar as its functional currency is…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a6bab670577e6b90429705e9c55f6fe745cea69ad9f40abaafaa8cf4acfa2bc4","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-210","para":"55-210","html":"
Because the portion of this instrument relating to the periodic interest payments denominated in a foreign currency is subject to the requirement in Topic 830 to recognize the foreign currency transaction gain or loss in earnings, the instrument should not be considered as containing an embedded foreign currency derivative instrument pursuant to paragraph 815-15-15-5. In this circumstance, the U.S. entity has the dollar as the functional currency and is making interest payments in a foreign currency. Remeasurement of the liability is required using future equivalent dollar interest payments determined by the current spot exchange rate and discounted at the historical effective interest rate.
","snippet":"Because the portion of this instrument relating to the periodic interest payments denominated in a foreign currency is subject to the requirement in Topic 830 to recognize the foreign currency transaction gain or loss in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:09c60d3e8fa2bebfb23dd0205d849c9d49d07dd34951525fd7477b7d72fcbbb4","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-211","para":"55-211","html":"
A U.S. lender issues a loan at an above-market interest rate. The loan is made in U.S. dollars, the borrower's functional currency, and the borrower has the option to repay the loan in U.S. dollars or in a fixed amount of a specified foreign currency.
","snippet":"A U.S. lender issues a loan at an above-market interest rate. The loan is made in U.S. dollars, the borrower's functional currency, and the borrower has the option to repay the loan in U.S. dollars or in a fixed amount o…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:aef466e91955631e21f7105b769715c2db2b1df2d2ddced5e855f5d7f07089e3","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-212","para":"55-212","html":"
This instrument can be viewed as combining a loan at prevailing market interest rates and a foreign currency option. The lender has written a foreign currency option exposing it to changes in foreign currency exchange rates during the outstanding period of the loan. The premium for the option has been paid as part of the interest rate. Because the borrower has the option to repay the loan in U.S. dollars or in a fixed amount of a specified foreign currency, the provisions of paragraph 815-15-15-5 are not relevant to this Case. That paragraph addresses foreign-currency-denominated interest or principal payments but does not apply to foreign currency options embedded in a functional-currency-denominated debt host contract. Because a foreign currency option is not clearly and closely related to issuing a loan, the embedded option should be separated from the host contract and accounted for by both parties pursuant to the provisions of this Subtopic. In contrast, if both the principal payment and the interest payments on the loan had been payable only in a fixed amount of a specified foreign currency, there would be no embedded foreign currency derivative pursuant to this Subtopic.
","snippet":"This instrument can be viewed as combining a loan at prevailing market interest rates and a foreign currency option. The lender has written a foreign currency option exposing it to changes in foreign currency exchange ra…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2afdcb9dcd7253fd594bf03e9b381d125a7fecb2f7aca8fbba2b5bce725ea0b9","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-213","para":"55-213","html":"
This Case involves a lease payment in foreign currency. A U.S. entity's operating lease with a Japanese lessor is payable in yen (JPY). The functional currency of the U.S. entity is the U.S. dollar (USD).
","snippet":"This Case involves a lease payment in foreign currency. A U.S. entity's operating lease with a Japanese lessor is payable in yen (JPY). The functional currency of the U.S. entity is the U.S. dollar (USD).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:66772ed6f072c2e2f336d94160373e535235e6ea3b8fcda0519bd124d350ce4c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-214","para":"55-214","html":"
Using available information about the lessor and its operations, the U.S. entity may decide it is reasonable to conclude that JPY would be the currency of the primary economic environment in which the Japanese lessor operates, consistent with the functional currency notion in Topic 830.
","snippet":"Using available information about the lessor and its operations, the U.S. entity may decide it is reasonable to conclude that JPY would be the currency of the primary economic environment in which the Japanese lessor ope…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:668b304f974ef8b0c90b15a82be1bfa072b83fc53827791834772569b32b754e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-215","para":"55-215","html":"
Thus, the lease should not be viewed as containing an embedded swap converting USD lease payments to JPY. Alternatively, if the lease payments are specified in a currency seemingly unrelated to each party's functional currency, such as drachmas (GRD) (assuming the leased property is not in Greece), the embedded foreign currency swap should be separated from the host contract and accounted for as a derivative for purposes of this Subtopic because the provisions of paragraph 815-15-15-10 would not apply and a separate instrument with the same terms would meet the definition of a derivative instrument in Section 815-10-15.
","snippet":"Thus, the lease should not be viewed as containing an embedded swap converting USD lease payments to JPY. Alternatively, if the lease payments are specified in a currency seemingly unrelated to each party's functional cu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6c729a39fd5e072b0de4a113d9267f61664cff3dc0343fba6c25bd161fb138f4","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-216","para":"55-216","html":"
Assume a U.S. entity enters into a contract to purchase corn from a local American supplier in six months for a fixed amount of Japanese yen (JPY); JPY is not the functional currency of either party to the transaction. The corn is expected to be delivered and used over a reasonable period in the normal course of business. Because JPY is not the functional currency of either party to the contract and the purchase of corn is transacted internationally in many different currencies, the contract does not qualify for the normal purchases and normal sales exception under Subtopic 815-10. The contract is a compound derivative comprising a U.S. dollar- (USD-) denominated forward contract for the purchase of corn and an embedded foreign currency swap from the purchaser's functional currency (USD) to JPY. The compound derivative instrument cannot be separated into its components (representing the foreign currency derivative instrument and the forward commodity contract) and accounted for separately under this Subtopic.
","snippet":"Assume a U.S. entity enters into a contract to purchase corn from a local American supplier in six months for a fixed amount of Japanese yen (JPY); JPY is not the functional currency of either party to the transaction. T…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fb91ef168516bb5863e87d2415974b220fd3b6488148930864133784aacab8a1","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-217","para":"55-217","html":"
In a convertible debt instrument, an investor receives a below-market interest rate and receives the option to convert its debt instrument into the equity of the issuer at an established conversion rate. The terms of the conversion require that the issuer deliver shares of stock to the investor.
","snippet":"In a convertible debt instrument, an investor receives a below-market interest rate and receives the option to convert its debt instrument into the equity of the issuer at an established conversion rate. The terms of the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:47aeff34fb469c4386f36acf8a220d04f0270676d5e4113456c2aeb12c6643b3","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-218","para":"55-218","html":"
This instrument essentially contains a call option on the issuer's stock. Under the provisions of this Subtopic, the accounting by the issuer and investor can differ. The issuer's accounting depends on whether a separate instrument with the same terms as the embedded written option would be a derivative instrument pursuant to Section 815-10-15. Assuming the option is indexed to the issuer's own stock and a separate instrument with the same terms would be classified in stockholders' equity in the statement of financial position, the written option is not considered to be a derivative instrument for the issuer under paragraph 815-10-15-74(a) and should not be separated from the host contract.
","snippet":"This instrument essentially contains a call option on the issuer's stock. Under the provisions of this Subtopic, the accounting by the issuer and investor can differ. The issuer's accounting depends on whether a separate…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e127f8f12e0f6b067ab3a1297a654608fa5dfc87c53d61492f2670e0ebcab39d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-219","para":"55-219","html":"
In contrast, if the terms of the conversion allow for a cash settlement rather than delivery of the issuer's shares at the investor's option, the exception in paragraph 815-10-15-74(a) for the issuer does not apply because the contract would not be classified in stockholders' equity in the issuer's statement of financial position. In that circumstance, the issuer should separate the embedded derivative from the host contract and account for it pursuant to the provisions of this Subtopic because both of the following conditions exist:
  1. a
    An option based on the entity's stock price is not clearly and closely related to an interest-bearing debt instrument.
  2. b
    The option would not be considered an equity instrument of the issuer (see paragraph 815-40-25-4(a)(2)).
","snippet":"In contrast, if the terms of the conversion allow for a cash settlement rather than delivery of the issuer's shares at the investor's option, the exception in paragraph 815-10-15-74(a) for the issuer does not apply becau…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:491284eefe14124a03cadb07fd11d22d1aac681707202197ef071a103c6ee889","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-220","para":"55-220","html":"
Similarly, if the convertible debt is indexed to another entity's publicly traded common stock, the issuer should separate the embedded derivative from the host contract and account for it pursuant to the provisions of this Subtopic because both of the following conditions exist:
  1. a
    An option based on another entity's stock price is not clearly and closely related to an investment in an interest-bearing note.
  2. b
    The option would not be considered an equity instrument of the issuer.
","snippet":"Similarly, if the convertible debt is indexed to another entity's publicly traded common stock, the issuer should separate the embedded derivative from the host contract and account for it pursuant to the provisions of t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ae80a1a84553ba2bd129817d533765da8d92129687677cd4783862db3a1b1250","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-221","para":"55-221","html":"
The exception in paragraph 815-10-15-74 does not apply to the investor's accounting. Therefore, in both circumstances described, the investor should separate the embedded option contract from the host contract and account for the embedded option contract pursuant to the provisions of this Subtopic because the option contract is based on the price of another entity's equity instrument and thus is not clearly and closely related to an investment in an interest-bearing note. However, if the terms of conversion do not allow for a cash settlement and if the common stock delivered upon conversion is privately held (that is, is not readily convertible to cash), the embedded derivative would not be separated from the host contract because it would not meet the criteria for net settlement as discussed beginning in paragraph 815-10-15-99.
","snippet":"The exception in paragraph 815-10-15-74 does not apply to the investor's accounting. Therefore, in both circumstances described, the investor should separate the embedded option contract from the host contract and accoun…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1f92c9fd3e9c705aa64a3258715c7e64909362d08cc3761f931e186b0e950c9a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-222","para":"55-222","html":"
Assume a dollar-denominated variable-rate interest is issued by a special-purpose entity that holds yen-denominated variable-rate bonds and a cross-currency swap to pay yen and receive dollars. If the variable rate reflects a current market rate and the notional amounts of the bonds and the swap correspond to the notional amount of the interests issued, the dollar-denominated variable-rate interest would not have an embedded derivative requiring bifurcation because the terms of the beneficial interest do not indicate an embedded derivative and the financial instruments held by the entity provide the necessary cash flows.
","snippet":"Assume a dollar-denominated variable-rate interest is issued by a special-purpose entity that holds yen-denominated variable-rate bonds and a cross-currency swap to pay yen and receive dollars. If the variable rate refle…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1a563aab85a815927f9777b84d2e62faba3e0b66544d98845f75fced3eb146ca","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-223","para":"55-223","html":"
Assume a variable-rate interest is issued by a special-purpose entity that holds fixed-rate bonds and a pay-fixed, receive-variable interest rate swap. The variable-rate interest would not have an embedded derivative requiring bifurcation because the terms of the beneficial interest do not indicate an embedded derivative and the financial instruments held by the entity provide the necessary cash flows. However, if the notional amounts of the fixed-rate bonds and the variable interest rate swap do not match, the variable-rate interest would have to be evaluated for an embedded derivative under paragraph 815-15-25-26 because the financial instruments held by the entity might not provide the necessary cash flows.
","snippet":"Assume a variable-rate interest is issued by a special-purpose entity that holds fixed-rate bonds and a pay-fixed, receive-variable interest rate swap. The variable-rate interest would not have an embedded derivative req…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:16d6dd5f4cfa2870c9b17191c780dfbab413c8e8a4f138793ad6233ce9d1215a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-224","para":"55-224","html":"
Assume a special-purpose entity that holds nonprepayable fixed-rate bonds issues all of the following three tranches:
  1. a
    A senior, variable-rate financial instrument (with a limited exposure to credit losses on the fixed-rate bonds)
  2. b
    A subordinated financial instrument that is entitled to 90 percent of the difference between the fixed rate received from the bonds and the variable rate paid to the senior financial instrument (with a limited exposure to credit losses on the fixed-rate bonds)
  3. c
    A residual financial instrument that is entitled to the remainder of the fixed-rate payment from the bonds after any credit losses on the fixed-rate bonds.
","snippet":"Assume a special-purpose entity that holds nonprepayable fixed-rate bonds issues all of the following three tranches:\n(a) A senior, variable-rate financial instrument (with a limited exposure to credit losses on the fixe…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f011e2ccad2e9e6b4cbf444c35751f1f4380a1c0af00c9ef08f7eb642396762a","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-225","para":"55-225","html":"
Each of the three tranches in the preceding paragraph would be a hybrid financial instrument with an embedded interest rate derivative feature that requires bifurcation analysis under paragraph 815-10-15-11 and Section 815-15-25 because the terms are variable rate even though the entity does not hold assets that bear a variable rate. This analysis considers the structure as a whole including the related liabilities. The embedded interest rate derivative feature in the senior, variable-rate financial instrument is considered to be clearly and closely related to the host contract. With respect to the subordinated financial instrument and the residual financial instrument, there could be a shortfall of cash flow after the senior interest holders are paid, due to adverse changes in interest rates, and the investor in either the subordinated interest or the residual interest might not recover substantially all of its initial recorded investment in the interest; thus, the embedded interest rate derivative feature is considered to be not clearly and closely related to the host contract. Therefore, the embedded interest rate derivative should be separated from the host contract and accounted for in accordance with the provisions of this Subtopic. Paragraph 815-15-15-9 is not relevant because risk features other than credit risk are present in the beneficial interests that require application of paragraph 815-10-15-11 and Section 815-15-25.
","snippet":"Each of the three tranches in the preceding paragraph would be a hybrid financial instrument with an embedded interest rate derivative feature that requires bifurcation analysis under paragraph 815-10-15-11 and Section 8…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d42bf1662f30aadb02a5a49e3baa704fd566725b6694118ae55ffa360bfcae49","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-226","para":"55-226","html":"
Assume a special-purpose entity that holds prepayable fixed-rate loans issues all of the following three tranches:
  1. a
    A senior, fixed-rate financial instrument that is entitled to receive fixed-rate interest payments and all the prepayments and repayments of principal amounts received from the debtors (with a limited exposure to credit losses on the fixed-rate loans)
  2. b
    A subordinated, fixed-rate financial instrument that is entitled to receive fixed-rate interest payments and the prepayments and repayments of principal amounts received from the debtors only after the holders of the senior financial instrument have been paid in full (with a limited exposure to credit losses on the fixed-rate loans)
  3. c
    A residual financial instrument that is entitled to the remainder of the fixed-rate interest payments from the loans and the prepayments and repayments of principal amounts received from the debtors only after the holders of both the senior financial instrument and the subordinated financial instrument have been paid in full. All credit losses on the fixed-rate loans are absorbed first by the holders of the residual financial instrument.
","snippet":"Assume a special-purpose entity that holds prepayable fixed-rate loans issues all of the following three tranches:\n(a) A senior, fixed-rate financial instrument that is entitled to receive fixed-rate interest payments an…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9695deae77c2f94dbddd3f4836ea9df8296a86a203820d3abd98441aa4d127c7","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-226A","para":"55-226A","html":"
Each of the three tranches in the preceding paragraph would be a hybrid financial instrument with an embedded derivative feature. Because the embedded derivative feature involves only the transfer of credit risk that is only in the form of subordination of one financial instrument to another (assuming that the investor did not pay a significant premium for the interest in the tranche), the scope exception in paragraph 815-15-15-9 applies, and the embedded credit derivative feature existing in the tranches would not be subject to the application of paragraph 815-10-15-11 and Section 815-15-25.
","snippet":"Each of the three tranches in the preceding paragraph would be a hybrid financial instrument with an embedded derivative feature. Because the embedded derivative feature involves only the transfer of credit risk that is …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9ad373e4cbcf01a026dcce65394f1f955c011e54cfda378bc5b75ad11ba4ca2b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-226B","para":"55-226B","html":"
Assume a special-purpose entity that holds guaranteed investment contracts and that wrote a credit default swap on a referenced credit to a third party with a significantly larger notional amount than the guaranteed investment contracts issues various tranches of credit-linked beneficial interests to investors that differ in terms of priority and in their potential obligation to fund any losses on the credit default swap. That is, if credit losses greater than the value of the guaranteed investment contracts are incurred under the credit default swap, the investors in each of the tranches might be required to provide additional funds to the special-purpose entity, which would then pass those funds on as payments to the holder of the credit default swap. Because the investors in those tranches are exposed to making potential future payments, all the embedded derivative features would be subject to the application of paragraph 815-10-15-11 and Section 815-15-25 (provided that the investor's overall contract is not a derivative in its entirety under Section 815-10-15). While the risk in those tranches is credit related, the investor can lose more than its original investment. Therefore, the credit risk for those tranches is not related only to subordination and would be evaluated under paragraph 815-10-15-11 and Section 815-15-25, particularly paragraph 815-15-25-51A.
","snippet":"Assume a special-purpose entity that holds guaranteed investment contracts and that wrote a credit default swap on a referenced credit to a third party with a significantly larger notional amount than the guaranteed inve…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:291845c0ea709485c7e7c6bf454d4264431d0cacdfd76716b4e0d5809d26c426","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-226C","para":"55-226C","html":"
Assume a special-purpose entity that holds securities issued by AA-rated Entity A and that wrote a credit default swap on a referenced credit (BBB-rated Entity B) to a third party (with a smaller notional amount than the securities held) issues various tranches of credit-linked beneficial interests to investors that differ in terms of priority for the distribution of cash flows from the special-purpose entity. The assets in the special-purpose entity are sufficient to fund any losses on the credit default swap. Furthermore, none of the tranches expose the investor to making potential future payments related to defaults on the written credit default swap. Rather, the investor is exposed to a potential reduction in its future cash inflows, which is the effect of the credit risk related to the credit default swap. That reduction in future cash flows is allocated among the tranches by the subordination of one tranche to another. Each of the tranches would be a hybrid financial instrument with an embedded credit derivative feature that requires bifurcation analysis under paragraph 815-10-15-11 and Section 815-15-25 because the beneficial interests are exposed to credit risk from the securities held (Entity A) and also from credit risk introduced by the credit default swap (Entity B) and, thus, the payments to investors would be affected if either Entity A or Entity B defaults. The embedded credit derivative feature in the beneficial interests would not be clearly and closely related to the host contract under Section 815-15-25. Therefore, the embedded credit derivative feature should be separated from the host contract and accounted for in accordance with the provisions of this Subtopic. Paragraph 815-15-15-9 is not relevant because the embedded credit risk is not related solely to subordination.
","snippet":"Assume a special-purpose entity that holds securities issued by AA-rated Entity A and that wrote a credit default swap on a referenced credit (BBB-rated Entity B) to a third party (with a smaller notional amount than the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a431574db087105434b777207a7d4fe4521c21a4e4a72ec5e20775218c1bb97d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-226D","para":"55-226D","html":"
Assume a special-purpose entity that holds securities issued by AA-rated Entity C and that wrote a credit default swap on a referenced credit (BBB-rated Entity D) to a third party uses a single-tranche structure to issue credit-linked beneficial interests to multiple investors. The assets in the special-purpose entity are sufficient to fund any losses on the credit default swap. Because the single-tranche structure involves no subordination of one financial instrument to another, the scope exception in paragraph 815-15-15-9 does not apply. The embedded credit derivative feature existing in the beneficial interests would be subject to the application of paragraph 815-10-15-11 and Section 815-15-25, as discussed in Case AA.
","snippet":"Assume a special-purpose entity that holds securities issued by AA-rated Entity C and that wrote a credit default swap on a referenced credit (BBB-rated Entity D) to a third party uses a single-tranche structure to issue…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:48fe7cac30cfcd107e8e91e3ec6c9ad29764dc993a37621ca6afd81a5cf4b50d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-227","para":"55-227","html":"
To illustrate the host contract and embedded derivative valuation issues in this Subtopic, consider the following equity-indexed annuity point-to-point design example, which includes a minimum account value stated as a return on the principal amount of the annuity.
","snippet":"To illustrate the host contract and embedded derivative valuation issues in this Subtopic, consider the following equity-indexed annuity point-to-point design example, which includes a minimum account value stated as a r…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bc7de6393a29619f5167349947cc65b74efe90cacc08a7baf0ad1520e2a0921b","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-228","para":"55-228","html":"
At inception, the insurer has received $100,000, recorded as follows.
","snippet":"At inception, the insurer has received $100,000, recorded as follows.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ae51bc1e33d2da839ad23ed758d4261df138f02a447d57d4142cb0b032236ef6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-229","para":"55-229","html":"
In the preceding journal entry, paragraphs 815-15-30-2 and 815-15-35-3 are followed: the embedded derivative is recorded at fair value, and the carrying value assigned to the host contract is the difference between the proceeds received from the issuance of the hybrid instrument and the fair value of the embedded derivative.
","snippet":"In the preceding journal entry, paragraphs 815-15-30-2 and 815-15-35-3 are followed: the embedded derivative is recorded at fair value, and the carrying value assigned to the host contract is the difference between the p…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1a0e2aefc4758ed9b17092fae22f6cdd3fc8b0b7caeef1b09245eefb71f1f557","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-230","para":"55-230","html":"
Accordingly, in this Example, the host contract would be accreted annually to the minimum account value at the end of the contract ($103,030) using an effective yield method (in this Example, the implicit interest rate underlying the host is 8.8 percent).
","snippet":"Accordingly, in this Example, the host contract would be accreted annually to the minimum account value at the end of the contract ($103,030) using an effective yield method (in this Example, the implicit interest rate u…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ca137f19c7164946025709d30802735aa6000cab10932011d0069e20884c9801","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-231","para":"55-231","html":"
From the issuer's (insurer's) perspective, an equity-indexed annuity liability comprises a fixed annuity host and an embedded written equity option. The embedded equity option should be accounted for under the provisions of Subtopic 815-10. The fixed annuity component should be accounted for under the provisions of Topic 944 that require debt instrument accounting. In this Example, the host contract is a discounted debt instrument that should be accreted using the effective yield method to its minimum account value at the projected maturity or termination date.
","snippet":"From the issuer's (insurer's) perspective, an equity-indexed annuity liability comprises a fixed annuity host and an embedded written equity option. The embedded equity option should be accounted for under the provisions…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b3d5b8f67071af314d521704945f6d638ac5a1c3454855a000b2ae51517108b6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-232","para":"55-232","html":"
Upon receipt of consideration for an equity-indexed annuity, the issuing entity should allocate a portion of the consideration to the embedded written option, as described in paragraphs 815-15-30-2 and 815-15-35-3, that is, the fair value of the option is assigned to the embedded derivative. The remainder of the consideration should be assigned to a fixed annuity host contract. Both credited interest and changes in the fair value of the embedded equity option would be recognized in earnings. Accordingly, in this Example, the host contract would be accreted annually to the minimum account value at the end of the contract ($103,030) using an effective yield method (in this example, the implicit interest rate underlying the host is 8.8 percent).
","snippet":"Upon receipt of consideration for an equity-indexed annuity, the issuing entity should allocate a portion of the consideration to the embedded written option, as described in paragraphs 815-15-30-2 and 815-15-35-3, that …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:da44eb31d9fc10cfc888ef2275ebed9423b7771d1f5665caa28b8bf14879775f","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-233","para":"55-233","html":"
The following Cases illustrate valuation of the components under the following scenarios at the end of Year 1:
  1. a
    Standard and Poor's Index increases (Case A).
  2. b
    Standard and Poor's Index decreases (Case B).
","snippet":"The following Cases illustrate valuation of the components under the following scenarios at the end of Year 1:\n(a) Standard and Poor's Index increases (Case A).\n(b) Standard and Poor's Index decreases (Case B).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3411c26c3998387f6d9a7a17fbfb56c44ce3217d2bd228b1c26debdf818c8d35","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-234","para":"55-234","html":"
The components are valued as follows.
","snippet":"The components are valued as follows.\nValue under Topic 944 (in absence of this Subtopic): $115,000 ($100,000 at 15% return)","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:838bebacf6124b8274b28d8371343ff3c10b5159045b9d948874180eb6734f9d","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-235","para":"55-235","html":"
Note that because of the market's implicit valuation of future volatility in the Standard and Poor's Index, as reflected in the fair value of the embedded derivative, the combined value of the embedded derivative and the host contract is greater than that which would be calculated for the contract as a whole under Topic 944. The proper accounting in this Case is to record a total liability of $116,000, the hybrid contract value under this Subtopic.
","snippet":"Note that because of the market's implicit valuation of future volatility in the Standard and Poor's Index, as reflected in the fair value of the embedded derivative, the combined value of the embedded derivative and the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:36e99b58ecc63103dd7f28a867a304359e3d513fd9728fc8f07f2ad565424fda","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-236","para":"55-236","html":"
The components are valued as follows.
","snippet":"The components are valued as follows.\nValue under Topic 944 (in absence of this Subtopic): $101,000 ($100,000 at 1% return)","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:48da21f2ba5bd8d9b7448d4cf5097be413133a60689d089f96e46fdcae6b272e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-237","para":"55-237","html":"
The components already reflect the application of paragraph 815-15-25-1 (the derivative instrument is measured at fair value) and paragraph 815-15-25-4 (the host contract is accreted like a debt instrument).
","snippet":"The components already reflect the application of paragraph 815-15-25-1 (the derivative instrument is measured at fair value) and paragraph 815-15-25-4 (the host contract is accreted like a debt instrument).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ce0f0af6f9fb1d2274f2f41c27988ea3f83f4275710c15c48b8ea3b561d7e21e","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-238","para":"55-238","html":"
As a result, the equity-indexed annuity liability would be recorded at $95,000 at the end of Year 1. A separate Topic 944 calculation of account value is no longer required because the derivative instrument is carried at fair value in accordance with this Subtopic and the host contract is recorded following the GAAP accounting guidance for an investment contract under that Topic. Therefore, the insurer should ignore any minimum liability that exceeds the sum of the embedded derivative separately accounted for and the host debt instrument that is accounted for applying the debt model.
","snippet":"As a result, the equity-indexed annuity liability would be recorded at $95,000 at the end of Year 1. A separate Topic 944 calculation of account value is no longer required because the derivative instrument is carried at…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b41bbec9ac2af84a2590f9d473fc0c147ac3f8efe963900908bc0311e221dce8","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-239","para":"55-239","html":"
This Example illustrates the application of paragraph 815-15-15-15 to the cited contract.
","snippet":"This Example illustrates the application of paragraph 815-15-15-15 to the cited contract.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:923b1cd766a0ed1a125b4f25ddd79fca321920ac62d083ba175a325cfc02d355","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-240","para":"55-240","html":"
On March 1, 20X0, Entity A enters into a Japanese yen- (JPY-) denominated forward purchase agreement to purchase a specified quantity of widgets in six months from Entity B. Entity A's functional currency is the U.S. dollar (USD) and Entity B's functional currency is JPY. The spot JPY/USD foreign exchange rate at the inception of the agreement is USD 1.00 equals JPY 110.00. Entity A wishes to collar its foreign exchange rate risk by ensuring that it will never pay more than the JPY equivalent to USD 11.00 per widget in return for committing to Entity B that it will never pay less than the JPY equivalent to USD 8.80 per widget. The agreement defines the price according to the following schedule.
","snippet":"On March 1, 20X0, Entity A enters into a Japanese yen- (JPY-) denominated forward purchase agreement to purchase a specified quantity of widgets in six months from Entity B. Entity A's functional currency is the U.S. dol…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d30d0b4325be00e12eeff8366a8d8ccbf829607fdbd7ab25afd5433be41fc070","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-241","para":"55-241","html":"
Entity A is exposed to foreign exchange risk in the range between JPY 100 and JPY 125, whereas Entity B is exposed outside that range. The following are various scenarios.
","snippet":"Entity A is exposed to foreign exchange risk in the range between JPY 100 and JPY 125, whereas Entity B is exposed outside that range. The following are various scenarios.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:56fdf5a8a069dd1181e5bb342cb0c7fdc2f747e29edbc27baf72780b19facd4c","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-242","para":"55-242","html":"
In essence, Entity A has not locked in a USD price or a JPY price for the purchased widgets. Instead, as desired, Entity A has locked in a price range in its functional currency (USD) between USD 8.80 and USD 11.00 for the purchased widgets. The final price to be paid within this range will be determined based on the JPY/USD foreign exchange rate. Based on the terms, the contract contains an embedded cap and floor (options). For purposes of this Example, assume that the combination of options represents a net purchased option for Entity A.
","snippet":"In essence, Entity A has not locked in a USD price or a JPY price for the purchased widgets. Instead, as desired, Entity A has locked in a price range in its functional currency (USD) between USD 8.80 and USD 11.00 for t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:20d2b2eb584122875c9689e0c1ff1981d12e7baaaea05a37f7294d8ed9b742fc","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},{"citation":"815-15-55-243","para":"55-243","html":"
The embedded foreign currency options within Entity A's purchase contract would qualify for the exclusion under paragraph 815-15-15-15 for purposes of Entity A's accounting because all of the following conditions exist:
  1. a
    The options are denominated in JPY and USD (the functional currencies of both parties to the contract).
  2. b
    There is no leverage feature within the options.
  3. c
    The combination of foreign currency options represents a net purchased option.
","snippet":"The embedded foreign currency options within Entity A's purchase contract would qualify for the exclusion under paragraph 815-15-15-15 for purposes of Entity A's accounting because all of the following conditions exist:\n…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:314a65fd11bfede3a8cd7e920c3dca9fce48ab43f1c4f0f32126ff465e5edf74","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d38743753e44ccdccbbad4d566175c5cbc9572da104a172c1944ea6296e222d7","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7b39334709154ec846b4899dab47ac940c1ef28424910ed2d59339d07ccf85c6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7b39334709154ec846b4899dab47ac940c1ef28424910ed2d59339d07ccf85c6","downloaded_from":"2026-09-10T01:36:24.773Z","last_downloaded_at":"2026-09-10T01:36:24.773Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480929","source_sha256":"86aa2e26beef442a4bbae6ae5e39618e67e25f61a6ab291367deff9d6bcc608b"}}