# ASC 815-20-25: Derivatives and Hedging — Hedging—General — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/20/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e3998752a0972a00f1062e9f18af09476ebdd1b6ee3f6fe69eb599119f1fcff5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/815/20/#25-recognition) SEC content: no ##### [815-20-25-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0cbd308b82c7d3582876d52841df59c676ef53c8d1db49346e90e377a4a2f41f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section sets forth criteria that must be met for designated hedging instruments and hedged items or [transactions](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") to qualify for [fair value hedge](https://asc.understandingaccounting.org/glossary/f/#fair-value-hedge "A hedge of the exposure to changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk.") accounting, [cash flow hedge](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.") accounting, and accounting for a hedge of a net investment in a foreign operation. The criteria are organized as follows: 1. a Formal designation and documentation at hedge inception 2. b Eligibility of hedged items and transactions 3. c Eligibility of hedging instruments 4. d Hedge effectiveness. 5. e Hedge accounting provisions applicable to certain private companies 6. f Hedge accounting provisions applicable to certain not-for-profit entities. ##### [815-20-25-2](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0ab095f50d31d4ab3cce997c009f6ff103823eb18691ed11bd4d406d61a251c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Section specifies whether a criterion applies to one or more types of hedging relationships. For example, paragraph [815-20-25-3(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) is specified as a criterion that applies to fair value hedges, cash flow hedges, and net investment hedges. #### Formal Designation and Documentation at Hedge Inception ##### [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5c5e43a5df305745387bddce6a4d0bdc803fd3b73a58c05bdb9fee61b4bdd524 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Concurrent designation and documentation of a hedge is critical; without it, an entity could retroactively identify a hedged item, a hedged [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities."), or a method of assessing effectiveness to achieve a desired accounting result. To qualify for hedge accounting, there shall be, at inception of the hedge, formal documentation of all of the following: 1. a [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/) 2. b Documentation requirement applicable to fair value hedges, cash flow hedges, and net investment hedges: 1. 1 The hedging relationship 2. 2 The entity's risk management objective and strategy for undertaking the hedge, including identification of all of the following: 1. i The hedging instrument. 2. ii The hedged item or transaction. 3. iii The nature of the risk being hedged. 4. iv The method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") (if a fair value hedge) or hedged transaction's variability in cash flows (if a cash flow hedge) attributable to the hedged risk. There shall be a reasonable basis for how the entity plans to assess the hedging instrument's effectiveness. 1. 01 An entity shall perform an initial prospective assessment of hedge effectiveness on a quantitative basis (using either a dollar-offset test or a statistical method such as regression analysis) unless one of the following applies: 1. A In a cash flow or fair value hedge, the entity applies the shortcut method in accordance with paragraphs [815-20-25-102 through 25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) 2. B In a cash flow or fair value hedge, the entity determines that the critical terms of the hedging instrument and the hedged item match in accordance with paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) . 3. C In a cash flow hedge, the hedging instrument is an option, and the conditions in paragraphs [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126) and [815-20-25-129 through 25-129A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) are met. 4. D In a cash flow hedge, a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") that is not a financial institution as described in paragraph [942-320-50-1](https://asc.understandingaccounting.org/asc/320/942/#320-942-50-1) applies the simplified hedge accounting approach in paragraphs [815-20-25-133 through 25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) . 5. E In a cash flow hedge, the entity assesses hedge effectiveness under the change in variable cash flows method in accordance with paragraphs [815-30-35-16 through 35-24](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-16) , and all of the conditions in paragraph [815-30-35-22](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-22) are met. 6. F In a cash flow hedge, the entity assesses hedge effectiveness under the hypothetical derivative method in accordance with paragraphs [815-30-35-25 through 35-29](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-25) , and all of the critical terms of the hypothetical derivative and hedging instrument are the same. 7. G In a net investment hedge, the entity assesses hedge effectiveness using a method based on changes in spot exchange rates, and the conditions in paragraph [815-35-35-5](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5) (for derivative instruments) or [815-35-35-12](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-12) (for nonderivative instruments) are met. 8. H In a net investment hedge, the entity assesses hedge effectiveness using a method based on changes in forward exchange rates, and the conditions in paragraph [815-35-35-17A](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-17A) are met. 2. 02 The initial prospective quantitative hedge effectiveness assessment using information applicable as of the date of hedge inception is considered to be performed concurrently at hedge inception if it is completed by the earliest of the following: 1. A The first quarterly hedge effectiveness assessment date 2. B The date that financial statements that include the hedged transaction are available to be issued 3. C The date that any criterion in Section 815-20-25 no longer is met 4. D The date of expiration, sale, termination, or exercise of the hedging instrument 5. E The date of dedesignation of the hedging relationship 6. F For a cash flow hedge of a forecasted transaction (in accordance with paragraph [815-20-25-13(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-13)), the date that the forecasted transaction occurs. 3. 03 An entity also shall document at hedge inception whether it elects to perform subsequent retrospective and prospective hedge effectiveness assessments on a qualitative basis and how it intends to carry out that qualitative assessment. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of effectiveness. In addition, the entity shall document which quantitative method it will use if facts and circumstances of the hedging relationship change and the entity must quantitatively assess hedge effectiveness in accordance with paragraph [815-20-35-2D](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D). An entity must document that it will perform the same quantitative assessment method for both initial and subsequent prospective hedge effectiveness assessments. The guidance in paragraphs [815-20-55-55 through 55-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-55) applies if the entity wants to change its quantitative method of assessing effectiveness after the initial quantitative effectiveness assessment. 4. 04 An entity that applies the shortcut method in paragraphs [815-20-25-102 through 25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) may elect to document at hedge inception a quantitative method to assess hedge effectiveness and measure hedge results if the entity determines at some point during the term of the hedging relationship that the use of the shortcut method was not or no longer is appropriate. See paragraphs [815-20-25-117A through 25-117D](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) . 5. v [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 6. vi If the entity is hedging foreign currency risk on an after-tax basis, that the assessment of effectiveness will be on an after-tax basis (rather than on a pretax basis). 3. c Documentation requirement applicable to fair value hedges only: 1. 1 For a fair value hedge of a [firm commitment](https://asc.understandingaccounting.org/glossary/f/#firm-commitment "An agreement with an unrelated party, binding on both parties and usually legally enforceable, with the following characteristics:The agreement specifies all significant terms, including the quantity to be exchanged, the fixed price, and the timing of the transaction. The fixed price may be expressed as a specified amount of an entity's functional currency or of a foreign currency. It may also be expressed as a specified interest rate or specified effective yield. The binding provisions of an agreement are regarded to include those legal rights and obligations codified in the laws to which such an agreement is subject. A price that varies with the market price of the item that is the subject of the firm commitment cannot qualify as a fixed price. For example, a price that is specified in terms of ounces of gold would not be a fixed price if the market price of the item to be purchased or sold under the firm commitment varied with the price of gold. The agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable. In the legal jurisdiction that governs the agreement, the existence of statutory rights to pursue remedies for default equivalent to the damages suffered by the nondefaulting party, in and of itself, represents a sufficiently large disincentive for nonperformance to make performance probable for purposes of applying the definition of a firm commitment."), a reasonable method for recognizing in earnings the asset or liability representing the gain or loss on the hedged firm commitment. 2. 2 For one or more interest rate risk hedging relationships designated under the portfolio layer method, an analysis to support the entity's expectation that the [hedged layer](https://asc.understandingaccounting.org/glossary/h/#hedged-layer "The hedged item designated in a portfolio layer method hedging relationship, representing a stated amount or stated amounts of a closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments that is not expected to be affected by prepayments, defaults, or other factors affecting the timing and amount of cash flows for the designated hedge period.") or layers is anticipated to be outstanding for the designated hedge period (see paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) for additional guidance). 4. d Documentation requirement applicable to cash flow hedges only: 1. 1 For a cash flow hedge of a [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices."), documentation shall include all relevant details, including all of the following: 1. i The date on or period within which the forecasted transaction is expected to occur. 2. ii The specific nature of asset or liability involved (if any). 3. iii Either of the following: 1. 01 The expected currency amount for hedges of foreign currency exchange risk; that is, specification of the exact amount of foreign currency being hedged 2. 02 The quantity of the forecasted transaction for hedges of other risks; that is, specification of the physical quantity (that is, the number of items or units of measure) encompassed by the hedged forecasted transaction. 4. iv If a forecasted sale or purchase is being hedged for price risk, the hedged transaction shall not be specified in either of the following ways: 1. 01 Solely in terms of expected currency amounts 2. 02 As a percentage of sales or purchases during a period. 5. v The current price of a forecasted transaction shall be identified to satisfy the criterion in paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) for offsetting cash flows. 6. vi The hedged forecasted transaction shall be described with sufficient specificity so that when a transaction occurs, it is clear whether that transaction is or is not the hedged transaction. Thus, a forecasted transaction could be identified as the sale of either the first 15,000 units of a specific product sold during a specified 3-month period or the first 5,000 units of a specific product sold in each of 3 specific months, but it could not be identified as the sale of the last 15,000 units of that product sold during a 3-month period (because the last 15,000 units cannot be identified when they occur, but only when the period has ended). 7. vii If the hedged risk is the variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") in a forecasted purchase or sale of a nonfinancial asset, identification of the contractually specified component. 8. viii If the hedged risk is the variability in cash flows attributable to changes in a contractually specified interest rate for forecasted interest receipts or payments on a variable-rate financial asset or liability, identification of the contractually specified interest rate. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Concurrent designation and documentation of a hedge is critical; without it, an entity could retroactively identify a hedged item, a hedged [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities."), or a method of assessing effectiveness to achieve a desired accounting result. To qualify for hedge accounting, there shall be, at inception of the hedge, formal documentation of all of the following: 1. a [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/) 2. b Documentation requirement applicable to fair value hedges, cash flow hedges, and net investment hedges: 1. 1 The hedging relationship 2. 2 The entity's risk management objective and strategy for undertaking the hedge, including identification of all of the following: 1. i The hedging instrument. 2. ii The hedged item or transaction. 3. iii The nature of the risk being hedged (also see the requirements in (d)(1)(viii)). 4. iv The method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") (if a fair value hedge) or hedged transaction's variability in cash flows (if a cash flow hedge) attributable to the hedged risk. There shall be a reasonable basis for how the entity plans to assess the hedging instrument's effectiveness. 1. 01 An entity shall perform an initial prospective assessment of hedge effectiveness on a quantitative basis (using either a dollar-offset test or a statistical method such as regression analysis) unless one of the following applies: 1. A In a cash flow or fair value hedge, the entity applies the shortcut method in accordance with paragraphs [815-20-25-102 through 25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) 2. B In a cash flow or fair value hedge, the entity determines that the critical terms of the hedging instrument and the hedged item match in accordance with paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) . 3. C In a cash flow hedge, the hedging instrument is an option, and the conditions in paragraphs [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126) and [815-20-25-129 through 25-129A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) are met. 4. D In a cash flow hedge, a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") that is not a financial institution as described in paragraph [942-320-50-1](https://asc.understandingaccounting.org/asc/320/942/#320-942-50-1) applies the simplified hedge accounting approach in paragraphs [815-20-25-133 through 25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) . 5. E In a cash flow hedge, the entity assesses hedge effectiveness under the change in variable cash flows method in accordance with paragraphs [815-30-35-16 through 35-24](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-16) , and all of the conditions in paragraph [815-30-35-22](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-22) are met. 6. F In a cash flow hedge, the entity assesses hedge effectiveness under the hypothetical derivative method in accordance with paragraphs [815-30-35-25 through 35-29](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-25) , and all of the critical terms of the hypothetical derivative and hedging instrument are the same. 7. G In a net investment hedge, the entity assesses hedge effectiveness using a method based on changes in spot exchange rates, and the conditions in paragraph [815-35-35-5](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5) (for derivative instruments) or [815-35-35-12](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-12) (for nonderivative instruments) are met. 8. H In a net investment hedge, the entity assesses hedge effectiveness using a method based on changes in forward exchange rates, and the conditions in paragraph [815-35-35-17A](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-17A) are met. 2. 02 The initial prospective quantitative hedge effectiveness assessment using information applicable as of the date of hedge inception is considered to be performed concurrently at hedge inception if it is completed by the earliest of the following: 1. A The first quarterly hedge effectiveness assessment date 2. B The date that financial statements that include the hedged transaction are available to be issued 3. C The date that any criterion in Section 815-20-25 no longer is met 4. D The date of expiration, sale, termination, or exercise of the hedging instrument 5. E The date of dedesignation of the hedging relationship 6. F For a cash flow hedge of a forecasted transaction (in accordance with paragraph [815-20-25-13(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-13)), the date that the forecasted transaction occurs. 3. 03 An entity also shall document at hedge inception whether it elects to perform subsequent retrospective and prospective hedge effectiveness assessments on a qualitative basis and how it intends to carry out that qualitative assessment. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of effectiveness. In addition, the entity shall document which quantitative method it will use if facts and circumstances of the hedging relationship change and the entity must quantitatively assess hedge effectiveness in accordance with paragraph [815-20-35-2D](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D). An entity must document that it will perform the same quantitative assessment method for both initial and subsequent prospective hedge effectiveness assessments. The guidance in paragraphs [815-20-55-55 through 55-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-55) applies if the entity wants to change its quantitative method of assessing effectiveness after the initial quantitative effectiveness assessment. 4. 04 An entity that applies the shortcut method in paragraphs [815-20-25-102 through 25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) may elect to document at hedge inception a quantitative method to assess hedge effectiveness and measure hedge results if the entity determines at some point during the term of the hedging relationship that the use of the shortcut method was not or no longer is appropriate. See paragraphs [815-20-25-117A through 25-117D](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) . 5. v [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 6. vi If the entity is hedging foreign currency risk on an after-tax basis, that the assessment of effectiveness will be on an after-tax basis (rather than on a pretax basis). 3. c Documentation requirement applicable to fair value hedges only: 1. 1 For a fair value hedge of a [firm commitment](https://asc.understandingaccounting.org/glossary/f/#firm-commitment "An agreement with an unrelated party, binding on both parties and usually legally enforceable, with the following characteristics:The agreement specifies all significant terms, including the quantity to be exchanged, the fixed price, and the timing of the transaction. The fixed price may be expressed as a specified amount of an entity's functional currency or of a foreign currency. It may also be expressed as a specified interest rate or specified effective yield. The binding provisions of an agreement are regarded to include those legal rights and obligations codified in the laws to which such an agreement is subject. A price that varies with the market price of the item that is the subject of the firm commitment cannot qualify as a fixed price. For example, a price that is specified in terms of ounces of gold would not be a fixed price if the market price of the item to be purchased or sold under the firm commitment varied with the price of gold. The agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable. In the legal jurisdiction that governs the agreement, the existence of statutory rights to pursue remedies for default equivalent to the damages suffered by the nondefaulting party, in and of itself, represents a sufficiently large disincentive for nonperformance to make performance probable for purposes of applying the definition of a firm commitment."), a reasonable method for recognizing in earnings the asset or liability representing the gain or loss on the hedged firm commitment. 2. 2 For one or more interest rate risk hedging relationships designated under the portfolio layer method, an analysis to support the entity's expectation that the [hedged layer](https://asc.understandingaccounting.org/glossary/h/#hedged-layer "The hedged item designated in a portfolio layer method hedging relationship, representing a stated amount or stated amounts of a closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments that is not expected to be affected by prepayments, defaults, or other factors affecting the timing and amount of cash flows for the designated hedge period.") or layers is anticipated to be outstanding for the designated hedge period (see paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) for additional guidance). 4. d Documentation requirement applicable to cash flow hedges only: 1. 1 For a cash flow hedge of a [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices."), documentation shall include all relevant details, including all of the following: 1. i The date on or period within which the forecasted transaction is expected to occur. 2. ii The specific nature of asset or liability involved (if any). 3. iii Either of the following: 1. 01 The expected currency amount for hedges of foreign currency exchange risk; that is, specification of the exact amount of foreign currency being hedged 2. 02 The quantity of the forecasted transaction for hedges of other risks; that is, specification of the physical quantity (that is, the number of items or units of measure) encompassed by the hedged forecasted transaction. 4. iv If a forecasted sale or purchase is being hedged for price risk, the hedged transaction shall not be specified in either of the following ways: 1. 01 Solely in terms of expected currency amounts 2. 02 As a percentage of sales or purchases during a period. 5. v The current price of a forecasted transaction shall be identified to satisfy the criterion in paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) for offsetting cash flows. 6. vi The hedged forecasted transaction shall be described with sufficient specificity so that when a transaction occurs, it is clear whether that transaction is or is not the hedged transaction. Thus, a forecasted transaction could be identified as the sale of either the first 15,000 units of a specific product sold during a specified 3-month period or the first 5,000 units of a specific product sold in each of 3 specific months, but it could not be identified as the sale of the last 15,000 units of that product sold during a 3-month period (because the last 15,000 units cannot be identified when they occur, but only when the period has ended). 7. vii If the hedged risk is the variability in cash flows attributable to changes in a component of the price of a nonfinancial asset (or a subcomponent as described in paragraph [815-20-25-22C(b)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C))in a forecasted purchase or sale of a nonfinancial asset that meets the criterion in paragraph [815-20-25-15(i)(3)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), identification of the component (or subcomponent). 8. viii If the hedged risk is the variability in cash flows attributable to changes in a contractually specified interest rate for forecasted interest receipts or payments on a variable-rate financial asset or liability, identification of the contractually specified interest rate. See paragraphs [815-30-35-37B through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) for guidance on changing the contractually specified interest rate for a hedge of forecasted interest payments on a variable-rate debt instrument that permits the borrower to select at each reset period the interest rate index from a list of contractual options (including the interest rate tenor) upon which interest is accrued (this debt instrument is referred to throughout Topic 815 as “choose-your-rate” debt). 2. 2 For a cash flow hedge of a group of forecasted transactions, the method that will be used to determine whether a group of individual forecasted transactions have a similar risk exposure in accordance with paragraph [815-20-55-23A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A). ##### [815-20-25-3A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:bddc5ed49dbc45ec969487b3a20ea9ba321409f052e4c76a796d6de34fe34b00 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [815-20-25-133 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) for guidance on the timing of completing the hedge documentation required by paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) for a private company that is not a financial institution. The guidance in paragraphs [815-20-25-133 through 25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) applies to hedging relationships in which the simplified hedge accounting approach is applied. The guidance in paragraphs [815-20-25-139 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) applies to all hedging relationships other than those in which the simplified hedge accounting approach is applied. The guidance in paragraphs [815-20-25-139 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) also applies to not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market) in accordance with paragraph [815-20-25-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-143). #### Eligibility of Hedged Items and Transactions ##### [815-20-25-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:6298b6c903627ed7f59a64b3d67e0726aeafc258851fabbdbb58b01ba4350303 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The eligibility criteria for hedged items and transactions are organized as follows: 1. a Hedged item and transaction criteria applicable to both fair value hedges and cash flow hedges 2. b Hedged item criteria applicable to fair value hedges only 3. c Hedged transaction criteria applicable to cash flow hedges only 4. d Hedged items involving [foreign exchange risk](https://asc.understandingaccounting.org/glossary/f/#foreign-exchange-risk "The risk of changes in a hedged item's fair value or functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates.") 5. e Items specifically ineligible for designation as a hedged item or transaction. ##### [815-20-25-5](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5bc633efb07298981beb2ce1f98a04fed1a4e4113a0660e8a02a49197be16015 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Incremental eligibility criteria applicable to both fair value hedges and cash flow hedges are organized as follows: 1. a Hedged items involving [interest rate risk](https://asc.understandingaccounting.org/glossary/i/#interest-rate-risk "For recognized variable-rate financial instruments and forecasted issuances or purchases of variable-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the contractually specified interest rate in the agreement. For recognized fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's fair value attributable to changes in the designated benchmark interest rate. For forecasted issuances or purchases of fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the designated benchmark interest rate.") 2. b Normal purchase or normal sale contract as a hedged item or transaction 3. c Different proportions of the same asset as a hedged item. ##### [815-20-25-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:82cb89fb58e5072c1472afe07b506a6e3cccc1e0f9186b9d071302d6ee142635 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Hedges involving a [benchmark interest rate](https://asc.understandingaccounting.org/glossary/b/#benchmark-interest-rate "A widely recognized and quoted rate in an active financial market that is broadly indicative of the overall level of interest rates attributable to high-credit-quality obligors in that market. It is a rate that is widely used in a given financial market as an underlying basis for determining the interest rates of individual financial instruments and commonly referenced in interest-rate-related transactions. In theory, the benchmark interest rate should be a risk-free rate (that is, has no risk of default). In some markets, government borrowing rates may serve as a benchmark. In other markets, the benchmark interest rate may be an interbank offered rate.") are addressed in paragraphs [815-20-25-12(f)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) and [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) (for fair value hedges) and paragraph [815-20-25-15(j)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) (for cash flow hedges). Hedges involving a contractually specified interest rate are addressed in [815-20-25-15(j)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) (for cash flow hedges). The benchmark interest rate or the contractually specified interest rate being hedged in a hedge of [interest rate risk](https://asc.understandingaccounting.org/glossary/i/#interest-rate-risk "For recognized variable-rate financial instruments and forecasted issuances or purchases of variable-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the contractually specified interest rate in the agreement. For recognized fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's fair value attributable to changes in the designated benchmark interest rate. For forecasted issuances or purchases of fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the designated benchmark interest rate.") shall be specifically identified as part of the designation and documentation at the inception of the hedging relationship. Paragraphs [815-20-25-19A through 25-19B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A) provide guidance on the interest rate risk designation of hedges of forecasted issuances or purchases of debt instruments. An entity shall not simply designate prepayment risk as the risk being hedged for a financial asset. However, it can designate the option component of a [prepayable](https://asc.understandingaccounting.org/glossary/p/#prepayable "Able to be settled by either party before its scheduled maturity.") instrument as the hedged item in a fair value hedge of the entity's exposure to changes in the overall fair value of that prepayment option, perhaps thereby achieving the objective of its desire to hedge prepayment risk. The effect of an [embedded derivative](https://asc.understandingaccounting.org/glossary/e/#embedded-derivative "Implicit or explicit terms that affect some or all of the cash flows or the value of other exchanges required by a contract in a manner similar to a derivative instrument.") of the same risk class shall be considered in designating a hedge of an individual risk. For example, the effect of an embedded prepayment option shall be considered in designating a hedge of interest rate risk. ##### [815-20-25-6A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:81ade036addec89d15429356e64f3c9299d070b5472faa6e47fe52f7b3ec3979 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the United States, the interest rates on direct Treasury obligations of the U.S. government, the [London Interbank Offered Rate (LIBOR) swap rate](https://asc.understandingaccounting.org/glossary/l/#london-interbank-offered-rate-libor-swap-rate "The fixed rate on a single-currency, constant-notional interest rate swap that has its variable-rate leg referenced to the London Interbank Offered Rate (LIBOR) with no additional spread over LIBOR on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equate to the present value of the variable cash flows."), the [Fed Funds Effective Rate Overnight Index Swap Rate](https://asc.understandingaccounting.org/glossary/f/#fed-funds-effective-swap-rate-or-overnight-index-swap-rate "The fixed rate on a U.S. dollar, constant-notional interest rate swap that has its variable-rate leg referenced to the Fed Funds effective rate with no additional spread over the Fed Funds effective rate on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equates to the present value of the variable cash flows. (P) December 16, 2018; (N) December 16, 2020815-20-65-4Glossary term superseded by Accounting Standards Update No. 2018-16."), the [Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate](https://asc.understandingaccounting.org/glossary/s/#securities-industry-and-financial-markets-association-sifma-municipal-swap-rate "The fixed rate on a U.S. dollar, constant-notional interest rate swap that has its variable-rate leg referenced to the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index with no additional spread over the SIFMA Municipal Swap Index on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equates to the present value of the variable cash flows."), and the [Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate](https://asc.understandingaccounting.org/glossary/s/#secured-overnight-financing-rate-sofr-overnight-index-swap-rate "The fixed rate on a U.S. dollar, constant-notional interest rate swap that has its variable-rate leg referenced to the Secured Overnight Financing Rate (SOFR) (an overnight rate) with no additional spread over SOFR on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equates to the present value of the variable cash flows.")are considered to be benchmark interest rates. In each financial market, generally only the most widely used and quoted rates may be considered benchmark interest rates. ##### [815-20-25-6B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ecdf27ef933669009b53f29f441a793c9be25ad892c185d3b6e57af7197383d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate a fair value hedge of interest rate risk in which the hedged item is a prepayable instrument in accordance with paragraph [815-20-25-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6). The entity may consider only how changes in the benchmark interest rate affect the decision to settle the hedged item before its scheduled maturity (for example, an entity may consider only how changes in the benchmark interest rate affect an obligor's decision to call a debt instrument when it has the right to do so). The entity need not consider other factors that would affect this decision (for example, credit risk) when assessing hedge effectiveness. Paragraph [815-25-35-13A](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13A) discusses the measurement of the hedged item. ##### [815-20-25-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b1c71f826acd732e64377ed629bd271a1a94d2a79328b52389ad0e9021279c29 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract that is not subject to the requirements of Subtopic 815-10 because it qualifies for the normal purchases and normal sales scope exception may be designated as a hedged item in a fair value hedge, if the provisions of this Section are met. As the hedged item, the contract would be accounted for under fair value hedge accounting. Similarly, the purchase under that contract may be the hedged transaction in a cash flow hedge, if the provisions of paragraph [815-20-25-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) are met. For cash flow hedges, the special accounting applies to the hedging instrument, not to the purchase contract that is related to the hedged forecasted transaction. ##### [815-20-25-8](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-8) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4a429084050a665f438629f3c2cff586b06ecd618a98eb441c55f2afa852be0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In emphasizing the conditions in the definition of a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") in paragraphs [815-10-15-83 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) , paragraphs [815-10-15-13 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) essentially exempt contracts that meet the definition of a derivative instrument from the requirements of Subtopic 815-10 applicable to derivative instruments. However, paragraphs [815-10-15-13 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) are not intended to preclude such contracts from being subject to the requirements of Subtopic 815-10 applicable to the hedged item in a fair value hedge. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [815-10-65-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-8)In emphasizing the conditions in the definition of a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") in paragraphs [815-10-15-83 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) , paragraphs [815-10-15-13 through 15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) and [815-10-15-62 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) essentially exempt contracts that meet the definition of a derivative instrument from the requirements of Subtopic 815-10 applicable to derivative instruments. However, paragraphs [815-10-15-13 through 15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) and [815-10-15-62 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) are not intended to preclude such contracts from being subject to the requirements of Subtopic 815-10 applicable to the hedged item in a fair value hedge. ##### [815-20-25-9](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1e4d747ce010d6bbc6d151d9d35603e6ed158cbb62fb4ae962515542d25e4241 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract that qualifies for the normal purchases and normal sales exception will typically satisfy the criteria for a firm commitment and will not be recognized on an entity's financial statements because of the exclusion from recognition under Subtopic 815-10 or other Topics. The transaction under a contract that qualifies for the normal purchases and normal sales exception but does not satisfy the criteria for a firm commitment because the contract does not contain a fixed price may be the hedged transaction in a cash flow hedge. ##### [815-20-25-10](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:da031b789b947788ea22e6cd71754a1b0e5e28f325f6994c02448407318b1695 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a hedging relationship in which a collar that is comprised of a purchased option and a written option that have different [notional amounts](https://asc.understandingaccounting.org/glossary/n/#notional-amount "A number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument. Sometimes other names are used. For example, the notional amount is called a face amount in some contracts.") is designated as the hedging instrument and the hedge's effectiveness is assessed based on changes in the collar's intrinsic value, the hedged item may be specified as two different proportions of the same asset referenced in the collar, based on the upper and lower price ranges specified in the two options that make up the collar. That is, the quantities of the asset designated as being hedged may be different based on those price ranges in which the collar's intrinsic value is other than zero. This guidance shall be applied only to collars that are a combination of a single written option and a single purchased option for which the [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") in both options is the same. This guidance shall not be applied by analogy to other derivative instruments designated as hedging instruments. Although the quantities of the asset designated as being hedged may be different based on the upper and lower price ranges in the collar, the actual assets that are the subject of the hedging relationship may not change. The quantities that are designated as hedged for a specific price or rate change shall be specified at the inception of the hedging relationship and shall not be changed unless the hedging relationship is dedesignated and a new hedging relationship is redesignated. Since the hedge's effectiveness is based on changes in the collar's intrinsic value, the assessment of hedge effectiveness shall compare the actual change in intrinsic value of the collar to the change in value of the prespecified quantity of the hedged asset that occurred during the hedge period. ##### [815-20-25-11](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:549ed179e1abd617501b68a964be18beb080dc09b7972d35d73558d50568224c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate a derivative instrument as hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof (hedged item) that is attributable to a particular risk if all applicable criteria in this Section are met. ##### [815-20-25-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0cee7a7253d06762a6e81871828a2bab59676e2af1b8c2bc348ae0bf3e19adac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An asset or a liability is eligible for designation as a hedged item in a fair value hedge if all of the following additional criteria are met: 1. a The hedged item is specifically identified as either all or a specific portion of a recognized asset or liability or of an unrecognized firm commitment. 2. b The hedged item is a single asset or liability (or a specific portion thereof) or is a portfolio of similar assets or a portfolio of similar liabilities (or a specific portion thereof), in which circumstance: 1. 1 If similar assets or similar liabilities are aggregated and hedged as a portfolio, the individual assets or individual liabilities shall share the risk exposure for which they are designated as being hedged. The change in fair value attributable to the hedged risk for each individual item in a hedged portfolio shall be expected to respond in a generally proportionate manner to the overall change in fair value of the aggregate portfolio attributable to the hedged risk. See the discussion beginning in paragraph [815-20-55-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-14) for related implementation guidance. An entity may use different stratification criteria for the purposes of impairment testing and for the purposes of grouping similar assets to be designated as a hedged portfolio in a fair value hedge. 2. 2 If the hedged item is a specific portion of an asset or liability (or of a portfolio of similar assets or a portfolio of similar liabilities), the hedged item is one of the following: 1. i A percentage of the entire asset or liability (or of the entire portfolio). An entity shall not express the hedged item as multiple percentages of a recognized asset or liability and then retroactively determine the hedged item based on an independent matrix of those multiple percentages and the actual scenario that occurred during the period for which hedge effectiveness is being assessed. 2. ii One or more selected contractual cash flows, including one or more individual interest payments during a selected portion of the term of a debt instrument (such as the portion of the asset or liability representing the present value of the interest payments in any consecutive two years of a four-year debt instrument). Paragraph [815-25-35-13B](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13B) discusses the measurement of the change in fair value of the hedged item in partial-term hedges of [interest rate risk](https://asc.understandingaccounting.org/glossary/i/#interest-rate-risk "For recognized variable-rate financial instruments and forecasted issuances or purchases of variable-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the contractually specified interest rate in the agreement. For recognized fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's fair value attributable to changes in the designated benchmark interest rate. For forecasted issuances or purchases of fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the designated benchmark interest rate.") using an assumed term. 3. iii A put option or call option (including an interest rate cap or price cap or an interest rate floor or price floor) embedded in an existing asset or liability that is not an embedded derivative accounted for separately pursuant to paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1). 4. iv The residual value in a lessor's net investment in a direct financing or sales-type lease. 3. c The hedged item presents an exposure to changes in fair value attributable to the hedged risk that could affect reported earnings. The reference to affecting reported earnings does not apply to an entity that does not report earnings as a separate caption in a statement of financial performance, such as a not-for-profit entity (NFP), in accordance with paragraph [815-20-15-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-15-1). 4. d If the hedged item is all or a portion of a debt security (or a portfolio of similar debt securities) that is classified as held to maturity in accordance with Topic 320, the designated risk being hedged is the risk of changes in its fair value attributable to [credit risk](https://asc.understandingaccounting.org/glossary/c/#credit-risk "For purposes of a hedged item in a fair value hedge, credit risk is the risk of changes in the hedged item's fair value attributable to both of the following: Changes in the obligor's creditworthiness Changes in the spread over the benchmark interest ratewith respect to the hedged item's credit sector at inception of the hedge. For purposes of a hedged transaction in a cash flow hedge, credit risk is the risk of changes in the hedged transaction's cash flows attributable to all of the following: Default Changes in the obligor's creditworthiness Changes in the spread over the contractually specified interest rate or the benchmark interest rate with respect to the related financial asset's or liability's credit sector at inception of the hedge."), foreign exchange risk, or both. If the hedged item is an option component of a held-to-maturity security that permits its prepayment, the designated risk being hedged is the risk of changes in the entire fair value of that option component. If the hedged item is other than an option component of a held-to-maturity security that permits its prepayment, the designated hedged risk also shall not be the risk of changes in its overall fair value. 5. e If the hedged item is a nonfinancial asset or liability (other than a recognized loan servicing right or a nonfinancial firm commitment with financial components), the designated risk being hedged is the risk of changes in the fair value of the entire hedged asset or liability (reflecting its actual location if a physical asset). That is, the price risk of a similar asset in a different location or of a major ingredient shall not be the hedged risk. Thus, in hedging the exposure to changes in the fair value of gasoline, an entity may not designate the risk of changes in the price of crude oil as the risk being hedged for purposes of determining effectiveness of the fair value hedge of gasoline. 6. f If the hedged item is a financial asset or liability, a recognized loan servicing right, or a nonfinancial firm commitment with financial components, the designated risk being hedged is any of the following: 1. 1 The risk of changes in the overall fair value of the entire hedged item 2. 2 The risk of changes in its fair value attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) 3. 3 The risk of changes in its fair value attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk) 4. 4 The risk of changes in its fair value attributable to both of the following (referred to as credit risk): 1. i Changes in the obligor's creditworthiness 2. ii Changes in the spread over the benchmark interest rate with respect to the hedged item's credit sector at inception of the hedge. 5. 5 If the risk designated as being hedged is not the risk in paragraph [815-20-25-12(f)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12), two or more of the other risks (interest rate risk, foreign currency exchange risk, and credit risk) may simultaneously be designated as being hedged. 7. g The item is not otherwise specifically ineligible for designation (see paragraph [815-20-25-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43)). ##### [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:36d4db00eae9fc0dcfe2d7e18ff8e519b06f5fd77e3fd89db0ccfc8dda55514b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a closed portfolio of financial assets or one or more [beneficial interests](https://asc.understandingaccounting.org/glossary/b/#beneficial-interests "Rights to receive all or portions of specified cash inflows received by a trust or other entity, including, but not limited to, all of the following: Senior and subordinated shares of interest, principal, or other cash inflows to be passed-through or paid-through Premiums due to guarantors Commercial paper obligations Residual interests, whether in the form of debt or equity.") secured by a portfolio of financial instruments, an entity may designate as the hedged item or items a hedged layer or layers if the following criteria are met (this designation is referred to throughout Topic 815 as the “portfolio layer method”): 1. a As part of the initial hedge documentation, an analysis is completed and documented to support the entity's expectation that the hedged item or items (that is, the hedged layer or layers in aggregate) is anticipated to be outstanding for the designated hedge period. That analysis shall incorporate the entity's current expectations of prepayments, defaults, and other factors affecting the timing and amount of cash flows associated with the closed portfolio. 2. b For purposes of its analysis in (a), the entity assumes that as prepayments, defaults, and other factors affecting the timing and amount of cash flows occur, they first will be applied to the portion of the closed portfolio that is not hedged. 3. c The entity applies the partial-term hedging guidance in paragraph [815-20-25-12(b)(2)(ii)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) to the assets or beneficial interest used to support the entity’s expectation in (a). An asset that matures on a hedged layer’s assumed maturity date meets this requirement. See paragraphs [815-25-55-1A through 55-1E](https://asc.understandingaccounting.org/asc/815/25/#815-25-55-1A) for implementation guidance related to a closed portfolio with multiple hedged layers. ##### [815-20-25-12B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:36444bc2f2585bcf44f33cfd950233a50ad364fa42f8e76cc7cb01269825b51b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After a closed portfolio is established in accordance with paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A), an entity may designate new hedging relationships associated with the closed portfolio without dedesignating any existing hedging relationships associated with the closed portfolio if the criteria in paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) are met for those newly designated hedging relationships. ##### [815-20-25-13](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:eac4f7420cf54e952550d7526ae48780bc92fb8fe63734ebf396917d6c87d445 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate a derivative instrument as hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. That exposure may be associated with either of the following: 1. a An existing recognized asset or liability (such as all or certain future interest payments on variable-rate debt) 2. b A forecasted transaction (such as a forecasted purchase or sale). Note that the glossary definition of [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") is intended to clearly distinguish a transaction from an internal cost allocation or an event that happens within an entity. ##### [815-20-25-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4b8453f32c2c83c42d3ff8c5e20986006e2038e93789bd7f2ab213a4913d0340 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of this Subtopic and Subtopic 815-30, the individual cash flows related to a recognized asset or liability and the cash flows related to a forecasted transaction are both referred to as a forecasted transaction or hedged transaction. ##### [815-20-25-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8e6c33cbf3af9339d75e0088ade44ee3dc93ec04237106b20c5cf73942f23ca2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A forecasted transaction is eligible for designation as a hedged transaction in a cash flow hedge if all of the following additional criteria are met: 1. a The forecasted transaction is specifically identified as either of the following: 1. 1 A single transaction 2. 2 A group of individual transactions that share the same risk exposure for which they are designated as being hedged. A forecasted purchase and a forecasted sale shall not both be included in the same group of individual transactions that constitute the hedged transaction. 2. b The occurrence of the forecasted transaction is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur."). 3. c The forecasted transaction meets both of the following conditions: 1. 1 It is a transaction with a party external to the reporting entity (except as permitted by paragraphs [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) and [815-20-25-38 through 25-40](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-38) ). 2. 2 It presents an exposure to variations in cash flows for the hedged risk that could affect reported earnings. 4. d The forecasted transaction is not the acquisition of an asset or incurrence of a liability that will subsequently be remeasured with changes in fair value attributable to the hedged risk reported currently in earnings. 5. e If the forecasted transaction relates to a recognized asset or liability, the asset or liability is not remeasured with changes in fair value attributable to the hedged risk reported currently in earnings. 6. f If the variable cash flows of the forecasted transaction relate to a debt security that is classified as held to maturity under Topic 320, the risk being hedged is the risk of changes in its cash flows attributable to any of the following risks: 1. 1 Credit risk 2. 2 Foreign exchange risk. 7. g The forecasted transaction does not involve a business combination subject to the provisions of Topic 805or a combination accounted for by an NFP that is subject to the provisions of Subtopic 958-805. 8. h The forecasted transaction is not a transaction (such as a forecasted purchase, sale, or dividend) involving either of the following: 1. 1 A parent entity's interests in consolidated subsidiaries 2. 2 An entity's own equity instruments. 9. i If the hedged transaction is the forecasted purchase or sale of a nonfinancial asset, the designated risk being hedged is any of the following: 1. 1 The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates 2. 2 The risk of changes in the cash flows relating to all changes in the purchase price or sales price of the asset reflecting its actual location if a physical asset (regardless of whether that price and the related cash flows are stated in the entity's functional currency or a foreign currency), not the risk of changes in the cash flows relating to the purchase or sale of a similar asset in a different location. 3. 3 The risk of variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09."). (See additional criteria in paragraphs [815-20-25-22A through 25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) for designating the variability in cash flows attributable to changes in a contractually specified component as the hedged risk.) 10. j If the hedged transaction is the forecasted purchase or sale of a financial asset or liability (or the interest payments on that financial asset or liability) or the variable cash inflow or outflow of an existing financial asset or liability, the designated risk being hedged is any of the following: 1. 1 The risk of overall changes in the hedged cash flows related to the asset or liability, such as those relating to all changes in the purchase price or sales price (regardless of whether that price and the related cash flows are stated in the entity's functional currency or a foreign currency) 2. 2 For forecasted interest receipts or payments on an existing variable-rate financial instrument, the risk of changes in its cash flows attributable to changes in the contractually specified interest rate (referred to as interest rate risk). For a forecasted issuance or purchase of a debt instrument (or the forecasted interest payments on a debt instrument), the risk of changes in cash flows attributable to changes in the benchmark interest rate or the expected contractually specified interest rate. See paragraphs [815-20-25-19A through 25-19B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A) for further guidance on the designation of interest rate risk in the forecasted issuance or purchase of a debt instrument. 3. 3 The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk) 4. 4 The risk of changes in its cash flows attributable to all of the following (referred to as credit risk): 1. i Default 2. ii Changes in the obligor's creditworthiness 3. iii Changes in the spread over the contractually specified interest rate or benchmark interest rate with respect to the related financial asset's or liability's credit sector at inception of the hedge. If the risk designated as being hedged is not the risk in paragraph [815-20-25-15(j)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), two or more of the other risks (interest rate risk, foreign exchange risk, and credit risk) simultaneously may be designated as being hedged. 11. k The item is not otherwise specifically ineligible for designation (see paragraph [815-20-25-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43)). Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)A forecasted transaction is eligible for designation as a hedged transaction in a cash flow hedge if all of the following additional criteria are met: 1. a The forecasted transaction is specifically identified as either of the following: 1. 1 A single transaction 2. 2 A group of individual transactions that have a similar risk exposure for which they are designated as being hedged. A forecasted purchase and a forecasted sale shall not both be included in the same group of individual transactions that constitute the hedged transaction. 2. b The occurrence of the forecasted transaction is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur."). 3. c The forecasted transaction meets both of the following conditions: 1. 1 It is a transaction with a party external to the reporting entity (except as permitted by paragraphs [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) and [815-20-25-38 through 25-40](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-38) ). 2. 2 It presents an exposure to variations in cash flows for the hedged risk that could affect reported earnings. 4. d The forecasted transaction is not the acquisition of an asset or incurrence of a liability that will subsequently be remeasured with changes in fair value attributable to the hedged risk reported currently in earnings. 5. e If the forecasted transaction relates to a recognized asset or liability, the asset or liability is not remeasured with changes in fair value attributable to the hedged risk reported currently in earnings. For example, if the forecasted transaction relates to the purchase or sale of a nonfinancial item under a contract that is accounted for as a derivative under Topic 815 (that is, a recognized asset or liability), an entity may designate the variable price component (or subcomponent) in the contract as the hedged risk if all other hedge criteria are satisfied. 6. f If the variable cash flows of the forecasted transaction relate to a debt security that is classified as held to maturity under Topic 320, the risk being hedged is the risk of changes in its cash flows attributable to any of the following risks: 1. 1 Credit risk 2. 2 Foreign exchange risk. 7. g The forecasted transaction does not involve a business combination subject to the provisions of Topic 805or a combination accounted for by an NFP that is subject to the provisions of Subtopic 958-805. 8. h The forecasted transaction is not a transaction (such as a forecasted purchase, sale, or dividend) involving either of the following: 1. 1 A parent entity's interests in consolidated subsidiaries 2. 2 An entity's own equity instruments. 9. i If the hedged transaction is the forecasted purchase or sale of a nonfinancial asset, the designated risk being hedged is any of the following: 1. 1 The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates 2. 2 The risk of changes in the cash flows relating to all changes in the purchase price or sales price of the asset reflecting its actual location if a physical asset (regardless of whether that price and the related cash flows are stated in the entity's functional currency or a foreign currency), not the risk of changes in the cash flows relating to the purchase or sale of a similar asset in a different location. 3. 3 The risk of changes in cash flows relating to a variable component (or subcomponent) of the purchase or sales price of a nonfinancial asset that meets the criteria in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). 10. j If the hedged transaction is the forecasted purchase or sale of a financial asset or liability (or the interest payments on that financial asset or liability) or the variable cash inflow or outflow of an existing financial asset or liability, the designated risk being hedged is any of the following: 1. 1 The risk of overall changes in the hedged cash flows related to the asset or liability, such as those relating to all changes in the purchase price or sales price (regardless of whether that price and the related cash flows are stated in the entity's functional currency or a foreign currency) 2. 2 For forecasted interest receipts or payments on an existing variable-rate financial instrument, the risk of changes in its cash flows attributable to changes in the contractually specified interest rate (referred to as interest rate risk). For a forecasted issuance or purchase of a debt instrument (or the forecasted interest payments on a debt instrument), the risk of changes in cash flows attributable to changes in the benchmark interest rate or the expected contractually specified interest rate. See paragraphs [815-20-25-19A through 25-19B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A) for further guidance on the designation of interest rate risk in the forecasted issuance or purchase of a debt instrument. 3. 3 The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk) 4. 4 The risk of changes in its cash flows attributable to all of the following (referred to as credit risk): 1. i Default 2. ii Changes in the obligor's creditworthiness 3. iii Changes in the spread over the contractually specified interest rate or benchmark interest rate with respect to the related financial asset's or liability's credit sector at inception of the hedge. If the risk designated as being hedged is not the risk in paragraph [815-20-25-15(j)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), two or more of the other risks (interest rate risk, foreign exchange risk, and credit risk) simultaneously may be designated as being hedged. 11. k The item is not otherwise specifically ineligible for designation (see paragraph [815-20-25-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43)). ##### [815-20-25-15A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:12855123c37c11a72d11f02befe6cc1689fde8584af749e380a823f9efd0b121 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Topic places no limitations on an entity's ability to prospectively designate, dedesignate, and redesignate a qualifying hedge of the same forecasted transaction. ##### [815-20-25-16](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e051f730ad45fcbcf8ec7263a74ec8c50881248c4a400c9897db3a93fefe9ec3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 4 (see paragraph [815-20-55-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-88)) illustrates that how the hedged forecasted transaction is designated and documented in a cash flow hedge is critically important in determining whether it is probable that the hedged forecasted transaction will occur. The following guidance expands on the timing and probability criteria in paragraphs [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) and [815-20-25-15(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15): 1. a Effect of counterparty creditworthiness on probability. An entity using a cash flow hedge shall assess the creditworthiness of the counterparty to the hedged forecasted transaction in determining whether the forecasted transaction is probable, particularly if the hedged transaction involves payments pursuant to a contractual obligation of the counterparty. 2. b Probability of forecasted acquisition of a marketable debt security. To qualify for cash flow hedge accounting for an option designated as a hedge of the forecasted acquisition of a marketable debt security, an entity must be able to establish at the inception of the hedging relationship that the acquisition of the marketable debt security is probable, without regard to the means of acquiring it. In documenting the hedging relationship, the entity shall specify the date on or period within which the forecasted acquisition of the security will occur. The evaluation of whether the forecasted acquisition of a marketable debt security is probable of occurring shall be independent of the terms and nature of the derivative instrument designated as the hedging instrument. Specifically, in determining whether an option designated as a hedge of the forecasted acquisition of a marketable debt security may qualify for cash flow hedge accounting, the probability of the forecasted transaction being consummated shall be evaluated without consideration of whether the option designated as the hedging instrument has an intrinsic value other than zero. 3. c Uncertainty of timing within a range. For forecasted transactions whose timing involves some uncertainty within a range, that range could be documented as the originally specified time period if the hedged forecasted transaction is described with sufficient specificity so that when a transaction occurs, it is clear whether that transaction is or is not the hedged transaction. As long as it remains probable that a forecasted transaction will occur by the end of the originally specified time period, cash flow hedge accounting for that hedging relationship would continue. See paragraph [815-30-40-4](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) for related guidance and Example 5 (see paragraph [815-20-55-100](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-100)), which illustrates the application of this paragraph. 4. d Importance of timing in both documentation and hedge effectiveness. Although documenting only the period within which the forecasted transaction will occur is sufficient to comply with the requirements of paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), compliance with Section 815-20-35 and paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) requires that the best estimate of the forecasted transaction's timing be both documented and used in assessing hedge effectiveness. As explained in paragraphs [815-20-25-84](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) and [815-20-25-120 through 25-121](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-120) , the time value of money is likely to be important in the assessment of cash flow hedge effectiveness, especially if the entity plans to use a rollover or tailing strategy to hedge its forecasted transaction. The use of time value of money requires information about the timing of cash flows. 5. e The term _probable_ requires a significantly greater likelihood of occurrence than the phrase _more likely than not_. 6. f The cash flow hedging model does not require that it be probable that any variability in the hedged transaction will actually occur—that is, in a cash flow hedge, the variability in future cash flows must be a possibility, but not necessarily a probability. However, the hedging derivative must be highly effective at achieving offsetting cash flows whenever that variability in future interest does occur. ##### [815-20-25-17](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:82234996018a467aaf1b6571f21683582787ff96f29b0f1becdf715f3c77fad2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Subtopic, the phrase _issuance of fixed-rate debt_ includes the issuance of a zero-coupon instrument because the interest element in a zero-coupon instrument is fixed at its issuance. ##### [815-20-25-18](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8e6b0c99d19db5ccc5856440bb2c6097012165810664832af9c5a36021f6eb57 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Provided the entity meets all the other cash flow hedging criteria, an entity may designate as the hedged risk the risk of changes in either of the following: 1. a The coupon payments (or the interest element of the final cash flow if interest is paid only at maturity) related to the forecasted issuance of fixed-rate debt 2. b The total proceeds attributable to changes in the benchmark interest rate related to the forecasted issuance of fixed-rate debt. The derivative instrument used to hedge either of these risks must provide offsetting cash flows for the hedging relationship to be effective in accordance with paragraph [815-20-35-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-3). ##### [815-20-25-19](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b90f4c1b253ded54b77ce893bcd119a5b0e8a6c63d1cf43c6059c428927ca04c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall not characterize its variable-rate debt as fixed-rate debt that, at each interest reset date, is effectively rolled over to another issuance of fixed-rate debt that has a new fixed interest rate until the next reset date. ##### [815-20-25-19A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:652ba5e92b1c2d492b52540f75995ef1c7e70559b701a647c1d67da5e2df7376 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [815-20-25-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6), if an entity designates a cash flow hedge of interest rate risk attributable to the variability in cash flows of a forecasted issuance or purchase of a debt instrument, it shall specify the nature of the interest rate risk being hedged as follows: 1. a If an entity expects that it will issue or purchase a fixed-rate debt instrument, the entity shall designate the variability in cash flows attributable to changes in the benchmark interest rate as the hedged risk. 2. b If an entity expects that it will issue or purchase a variable-rate debt instrument, the entity shall designate the variability in cash flows attributable to changes in the contractually specified interest rate as the hedged risk. ##### [815-20-25-19B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:57c65e5f3e87ef1fbf26a8df716d985070deddd8de5afe33f715dd0759b2df23 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity does not know at the inception of the hedging relationship whether the debt instrument that will be issued or purchased will be fixed rate or variable rate, the entity shall designate as the hedged risk the variability in cash flows attributable to changes in a rate that would qualify both as a benchmark interest rate if the instrument issued or purchased is fixed rate and as a contractually specified interest rate if the instrument issued or purchased is variable rate. ##### [815-20-25-20](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fb663449ccc87c02350aeed6096848d93a43be5093ffd6f9bceb2655f4829b78 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-15(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) does not require that hedged variable interest payments relate to a specific unchanging obligation or group of variable-rate obligations if those obligations are prepayable. Example 7 (see paragraph [815-20-55-106](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-106)) illustrates this principle. ##### [815-20-25-21](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:6aba1a5e73797d7fa647892b1f9208bf9a0a75611005f61cbee1e482d1150a7c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-10-15-4](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-4) states that, if a contract meets the definition of both a derivative instrument and a firm commitment under the Derivatives and Hedging Topic (as illustrated in Example 8 \[see paragraph [815-20-55-111](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-111)\]), then an entity shall account for the contract as a derivative instrument unless one of the exceptions in this Topic applies. In that circumstance, either of the following may be true: 1. a The forecasted transaction and the derivative instrument used to hedge it are with the same counterparty. 2. b The derivative instrument is the same contract under which the entity executes the forecasted transaction. ##### [815-20-25-22](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:12d648565ec85bcba6fef34fef32d1272f2f37e0ad58969a17f5e5d2bd13e5c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assuming other cash flow hedge criteria are met, a derivative instrument that will involve gross settlement may be designated as the hedging instrument in a cash flow hedge of the variability of the consideration to be paid or received in a forecasted transaction that will occur upon gross settlement of the derivative instrument itself (an [all-in-one hedge](https://asc.understandingaccounting.org/glossary/a/#all-in-one-hedge "In an all-in-one hedge, a derivative instrument that will involve gross settlement is designated as the hedging instrument in a cash flow hedge of the variability of the consideration to be paid or received in the forecasted transaction that will occur upon gross settlement of the derivative instrument itself.")). This guidance applies to fixed-price contracts to acquire or sell a nonfinancial or financial asset that are accounted for as derivative instruments under this Topic provided the criteria for a cash flow hedge are met. ##### [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fe0d6137aaa6d86a8bbdfabfab65f24043747e9616b7fc26ca6a1c17aade41be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For existing contracts, determining whether the variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") may be designated as the hedged risk in a cash flow hedge is based on the following: 1. a If the contract to purchase or sell a nonfinancial asset is a derivative in its entirety and an entity applies the normal purchases and normal sales scope exception in accordance with Subtopic 815-10, any contractually specified component in the contract is eligible to be designated as the hedged risk. If the entity does not apply the normal purchases and normal sales scope exception, no pricing component is eligible to be designated as the hedged risk. 2. b If the contract to purchase or sell a nonfinancial asset is not a derivative in its entirety, any contractually specified component remaining in the host contract (that is, the contract to purchase or sell a nonfinancial asset after any embedded derivatives have been bifurcated in accordance with Subtopic 815-15) is eligible to be designated as the hedged risk. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)
Editor's Note: The heading that precedes paragraph 815-20-25-22A will be amended upon transition as shown below, and the content of the paragraph will be superseded.
• • > Eligibility Criteria for Designating the Variability in Cash Flows Attributable to Changes in a Component (or Subcomponent) of the Purchase Price or Sales Price of a Nonfinancial Asset as the Hedged Risk
[Paragraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) ##### [815-20-25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:61a21f12fae8bbfea09e6932a7142b843fa87559d525bd2c5d5cae64ac5864e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate the variability in cash flows attributable to changes in a contractually specified component in accordance with paragraph [815-20-25-15(i)(3)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) to purchase or sell a nonfinancial asset for a period longer than the contractual term or for a not-yet-existing contract to purchase or sell a nonfinancial asset if the entity expects that the requirements in paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) will be met when the contract is executed. Once the contract is executed, the entity shall apply the guidance in paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) to determine whether the variability in cash flows attributable to changes in the contractually specified component can continue to be designated as the hedged risk. See paragraphs [815-20-55-26A through 55-26E](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-26A) for related implementation guidance. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)[Paragraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) ##### [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:030bb30b42a5a50fa197560a6e3b95aa9cde83346cc210db12ed3557443cf7f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)An entity may designate the variability in cash flows attributable to changes in a component (or subcomponent) of the forecasted purchase price or sales price of a nonfinancial asset as the hedged risk in a cash flow hedge as follows: 1. a If the purchase price or sales price of the nonfinancial asset is not determined in accordance with a pricing formula in an agreement, the hedged variable component is clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to the nonfinancial asset being purchased or sold. 2. b If the purchase price or sales price of the nonfinancial asset is determined in accordance with a pricing formula in an agreement, the hedged variable component is either of the following: 1. 1 Explicitly referenced in the agreement’s pricing formula and clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to the nonfinancial asset being purchased or sold 2. 2 Clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to a variable component that meets the conditions in (b)(1) (that is, a “subcomponent”). (Throughout Subtopic 815-20, reference to a subcomponent refers only to the designation guidance in this subparagraph.) ##### [815-20-25-23](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9c3ecc27b789144f93672417f96ab5f709ba88fc183d6823d566a2036dad8de7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the functional currency concept of Topic 830, exposure to a foreign currency exists only in relation to a specific operating unit's designated functional currency cash flows. Therefore, exposure to foreign currency risk shall be assessed at the unit level. ##### [815-20-25-24](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:69b548ee8d75eced91c5f8867d69266f87877d8b3e52fb8404aefe0bd0d280ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A unit has exposure to foreign currency risk only if it enters into a transaction (or has an exposure) denominated in a currency other than the unit's functional currency. ##### [815-20-25-25](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:7bcd173c5280a7a12d69f0edfd0c0965a5e65937a6715104bb134e0ce6b48aae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Due to the requirement in Topic 830 for remeasurement of assets and liabilities denominated in a foreign currency into the unit's functional currency, changes in exchange rates for those currencies will give rise to exchange gains or losses, which results in direct foreign currency exposure for the unit but not for the parent entity if its functional currency differs from its unit's functional currency. ##### [815-20-25-26](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2e2175bd9b1452a43c765a33be628e36d8e21876c90ff5a529da43c132d740f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The functional currency concepts of Topic 830 are relevant if the foreign currency exposure being hedged relates to any of the following: 1. a An unrecognized foreign-currency-denominated firm commitment 2. b A recognized foreign-currency-denominated asset or liability 3. c A foreign-currency-denominated forecasted transaction 4. d The forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability 5. e A net investment in a foreign operation. ##### [815-20-25-27](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1a3d85c8208e8a1e15b6389dc2f758fe7289072b1b816480e7ec19e8aa2d687e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because a parent entity whose functional currency differs from its subsidiary's functional currency is not directly exposed to the risk of exchange rate changes due to a subsidiary transaction that is denominated in a currency other than a subsidiary's functional currency, the parent cannot qualify for hedge accounting for a hedge of that risk. Accordingly, a parent entity that has a different functional currency cannot qualify for hedge accounting for direct hedges of a subsidiary's recognized asset or liability, unrecognized firm commitment or forecasted transaction denominated in a currency other than the subsidiary's functional currency. Also, a parent that has a different functional currency cannot qualify for hedge accounting for a hedge of a net investment of a first-tier subsidiary in a second-tier subsidiary. ##### [815-20-25-28](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c0cff2c758ec76b7020723bee5412ac0a74f096cbb07dc81caa6508d5b67b434 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the hedged item is denominated in a foreign currency, an entity may designate any of the following types of hedges of foreign currency exposure: 1. a A fair value hedge of an unrecognized firm commitment or a recognized asset or liability (including an available-for-sale debt security) 2. b A cash flow hedge of any of the following: 1. 1 A forecasted transaction 2. 2 An unrecognized firm commitment 3. 3 The forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability 4. 4 A forecasted intra-entity transaction. 3. c A hedge of a net investment in a foreign operation. ##### [815-20-25-29](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a8c0e3ed9bd66b428fdebeba01d158bc1e06531eeb5ac66b5e2af6b29c55fd6f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The recognition in earnings of the foreign currency transaction gain or loss on a foreign-currency-denominated asset or liability based on changes in the foreign currency [spot rate](https://asc.understandingaccounting.org/glossary/s/#spot-rate "The exchange rate for immediate delivery of currencies exchanged.") is not considered to be the remeasurement of that asset or liability with changes in fair value attributable to foreign exchange risk recognized in earnings, which is discussed in the criteria in paragraphs [815-20-25-15(d)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) and [815-20-25-43(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43). Thus, those criteria are not impediments to either of the following: 1. a A foreign currency fair value or cash flow hedge of such a foreign-currency-denominated asset or liability 2. b A foreign currency cash flow hedge of the forecasted acquisition or incurrence of a foreign-currency-denominated asset or liability whose carrying amount will be remeasured at spot exchange rates under paragraph [830-20-35-1](https://asc.understandingaccounting.org/asc/830/20/#830-20-35-1). ##### [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2bf83632f32e0e9f05655b370f89496f21843fd3b17908d6c0de3edad549f897 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Both of the following conditions shall be met for foreign currency cash flow hedges, foreign currency fair value hedges, and hedges of the net investment in a foreign operation: 1. a For consolidated financial statements, either of the following conditions is met: 1. 1 The operating unit that has the foreign currency exposure is a party to the hedging instrument. 2. 2 Another member of the consolidated group that has the same functional currency as that operating unit is a party to the hedging instrument and there is no intervening subsidiary with a different functional currency. See guidance beginning in paragraph [815-20-25-52](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-52) for conditions under which an intra-entity foreign currency derivative can be the hedging instrument in a cash flow hedge of foreign exchange risk. 2. b The hedged transaction is denominated in a currency other than the hedging unit's functional currency. ##### [815-20-25-31](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a6c170e83073037fe83e94be5b27f165a6cdb4a67d4ecbedfd9c9d92777c700a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, a subsidiary may enter into an intra-entity hedging instrument with the parent entity, and that contract can be a hedging instrument in the consolidated financial statements if the parent entity enters into an offsetting contract (pursuant to paragraph [815-20-25-52](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-52) for the appropriate hedging relationship) with an unrelated third party to hedge the exposure it acquired from issuing the derivative instrument to the subsidiary that initiated the hedge. ##### [815-20-25-32](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:632863c8574ae54d8787325808bdc14db3dfeec8c2935835236d4ee6d0ed13d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a subsidiary has the same functional currency as the parent entity or other member of the consolidated group, the parent entity or that other member of the consolidated group may, subject to certain restrictions, enter into a derivative instrument or nonderivative instrument that is designated as the hedging instrument in a hedge of that subsidiary's foreign exchange risk in consolidated financial statements. ##### [815-20-25-33](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1aefb77ef2239d03d8723f071077ecf330b4ad7ce5137907e3bafe5155f91207 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In some instances, it may not be practical or feasible to hedge in the same currency and, therefore, a hedging instrument also may be denominated in a currency for which the exchange rate generally moves in tandem with the exchange rate for the currency in which the hedged item is denominated. ##### [815-20-25-34](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b9fa4e20d4cbb75ce9d9679b7bc5a0abfad8728385ca1a4a63a0b915b2b4d2f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The provisions of this Section (including paragraph [815-20-25-28](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-28)) that permit a recognized foreign-currency-denominated asset or liability to be the hedged item in a fair value or cash flow hedge of foreign currency exposure also pertain to a recognized foreign-currency-denominated receivable or payable that results from a hedged forecasted foreign-currency-denominated sale or purchase on credit. Specifically, an entity may choose to designate either of the following: 1. a A single cash flow hedge that encompasses the variability of functional currency cash flows attributable to foreign exchange risk related to the settlement of the foreign-currency-denominated receivable or payable resulting from a forecasted sale or purchase on credit 2. b Both of the following separate hedges: 1. 1 A cash flow hedge of the variability of functional currency cash flows attributable to foreign exchange risk related to a forecasted foreign-currency-denominated sale or purchase on credit 2. 2 A foreign currency fair value hedge of the resulting recognized foreign-currency-denominated receivable or payable. ##### [815-20-25-35](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2dd0c2d2a4d58cdee906a0e25c6ed8421040358b3a919fb1a0c6bc04afd5830e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If two separate hedges are designated, the cash flow hedge would terminate (that is, be dedesignated) when the hedged sale or purchase occurs and the foreign-currency-denominated receivable or payable is recognized. ##### [815-20-25-36](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c296100abf1f677abeb904c48b6df2ed42c2c4f26b781f4ff32669d7753aa6de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The use of the same foreign currency derivative instrument for both the cash flow hedge and the fair value hedge is not prohibited. ##### [815-20-25-37](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ccc5a4fbb864c3c19e3ca47192b2665a74fab8270d70ee7b5ab2d52773378c7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This paragraph identifies possible hedged items in fair value hedges of foreign exchange risk. If every applicable criterion is met, all of the following are eligible for designation as a hedged item in a fair value hedge of foreign exchange risk: 1. a Recognized asset or liability. A derivative instrument can be designated as hedging the changes in the fair value of a recognized asset or liability (or a specific portion thereof) for which a foreign currency transaction gain or loss is recognized in earnings under the provisions of paragraph [830-20-35-1](https://asc.understandingaccounting.org/asc/830/20/#830-20-35-1). All recognized foreign-currency-denominated assets or liabilities for which a foreign currency transaction gain or loss is recorded in earnings shall qualify for the accounting specified in Subtopic 815-25 if all the fair value hedge criteria in this Section (including the conditions in paragraph [815-20-25-30(a) through (b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30)) are met. 2. b Available-for-sale debt security. A derivative instrument can be designated as hedging the changes in the fair value of an available-for-sale debt security (or a specific portion thereof) attributable to changes in foreign currency exchange rates. The designated hedging relationship qualifies for the accounting specified in Subtopic 815-25 if all the fair value hedge criteria in this Section (including the conditions in paragraph [815-20-25-30(a) through (b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30)) are met. 3. c [Subparagraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). 4. d Unrecognized firm commitment. Paragraph [815-20-25-58](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) states that a derivative instrument or a nonderivative financial instrument that may give rise to a foreign currency transaction gain or loss under Topic 830 can be designated as hedging changes in the fair value of an unrecognized firm commitment, or a specific portion thereof, attributable to foreign currency exchange rates. ##### [815-20-25-38](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:896c3f25cd0d8b36b1e0122ae656e7e8a59491b8104c8e62ecae483cc0ee38f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The conditions in the following paragraph relate to a derivative instrument designated as hedging the foreign currency exposure to variability in the functional-currency-equivalent cash flows associated with any of the following: 1. a A forecasted transaction (for example, a forecasted export sale to an unaffiliated entity with the price to be denominated in a foreign currency) 2. b A recognized asset or liability 3. c An unrecognized firm commitment 4. d A forecasted intra-entity transaction (for example, a forecasted sale to a foreign subsidiary or a forecasted royalty from a foreign subsidiary). ##### [815-20-25-39](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ab99e1d95198d722d98174946a5ec43dfa1dc4e4ae6bc9653c665c3c3644866f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A hedging relationship of the type described in the preceding paragraph qualifies for hedge accounting if all the following criteria are met: 1. a The criteria in paragraph [815-20-25-30(a) through (b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) are met. 2. b All of the cash flow hedge criteria in this Section otherwise are met, except for the criterion in paragraph [815-20-25-15(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) that requires that the forecasted transaction be with a party external to the reporting entity. 3. c If the hedged transaction is a group of individual forecasted foreign-currency-denominated transactions, a forecasted inflow of a foreign currency and a forecasted outflow of the foreign currency cannot both be included in the same group. 4. d If the hedged item is a recognized foreign-currency-denominated asset or liability, all the variability in the hedged item's functional-currency-equivalent cash flows shall be eliminated by the effect of the hedge. ##### [815-20-25-40](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1c6f4866d8fa2de05d4c727cc05df6ed22731c58774df43983f9b993d1879681 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of item (d) in the preceding paragraph, an entity shall not specifically exclude a risk from the hedge that will affect the variability in cash flows. For example, a cash flow hedge cannot be used with a variable-rate foreign-currency-denominated asset or liability and a derivative instrument based solely on changes in exchange rates because the derivative instrument does not eliminate all the variability in the functional currency cash flows. As long as no element of risk that affects the variability in foreign-currency-equivalent cash flows has been specifically excluded from a foreign currency cash flow hedge and the hedging instrument is highly effective at providing the necessary offset in the variability of all cash flows, a less-than-perfect hedge would meet the requirement in (d) in the preceding paragraph. That criterion does not require that the derivative instrument used to hedge the foreign currency exposure of the forecasted foreign-currency-equivalent cash flows associated with a recognized asset or liability be perfectly effective, rather it is intended to ensure that the hedging relationship is highly effective at offsetting all risks that impact the variability of cash flows. ##### [815-20-25-41](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:d1eb7fc7e764b297a88fc05b083c076fd05d1dffc83b7880b32c5231f3646c56 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If all of the variability of the functional-currency-equivalent cash flows is eliminated as a result of the hedge (as required by paragraph [815-20-25-39(d)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39)), an entity can use cash flow hedge accounting to hedge the variability in the functional-currency-equivalent cash flows associated with any of the following: 1. a All of the payments of both principal and interest of a foreign-currency-denominated asset or liability 2. b All of the payments of principal of a foreign-currency-denominated asset or liability 3. c All or a fixed portion of selected payments of either principal or interest of a foreign-currency-denominated asset or liability 4. d Selected payments of both principal and interest of a foreign-currency-denominated asset or liability (for example, principal and interest payments on December 31, 20X1, and December 31, 20X3). ##### [815-20-25-42](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4caf98997acf832bd8549a3f43df52e213235b5539e9770f5edf2fbf061eab7b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The reference in the definition of a forecasted transaction indicating that a forecasted transaction is not a firm commitment focuses on firm commitments that have no variability. The reference does not preclude a cash flow hedge of the variability in functional-currency-equivalent cash flows if the commitment's fixed price is denominated in a foreign currency. Although that definition of a firm commitment requires a fixed price, it permits the fixed price to be denominated in a foreign currency. A firm commitment can expose the parties to variability in their functional-currency-equivalent cash flows. The definition of a forecasted transaction also indicates that the transaction or event will occur at the prevailing market price. From the perspective of the hedged risk (foreign exchange risk), the translation of the foreign currency proceeds from the sale of the nonfinancial assets will occur at the prevailing market price (that is, current exchange rate). Example 14 (see paragraph [815-20-55-136](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-136)) illustrates the application of this guidance. ##### [815-20-25-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c2005f6e9758fa878af12f35bab8392d898f7d61832cc16527f2b4ecbe972479 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Besides those hedged items and transactions that fail to meet the specified eligibility criteria, none of the following shall be designated as a hedged item or transaction in the respective hedges: 1. a [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 2. b With respect to both fair value hedges and cash flow hedges: 1. 1 An investment accounted for by the equity method in accordance with the requirements of Subtopic 323-10 or in accordance with the requirements of Topic 321 2. 2 A [noncontrolling interest](https://asc.understandingaccounting.org/glossary/n/#noncontrolling-interest "The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest.") in one or more consolidated subsidiaries 3. 3 Transactions with stockholders as stockholders, such as either of the following: 1. i Projected purchases of treasury stock 2. ii Payments of dividends. 4. 4 Intra-entity transactions (except for foreign-currency-denominated forecasted intra-entity transactions) between entities included in consolidated financial statements 5. 5 The price of stock expected to be issued pursuant to a stock option plan for which recognized compensation expense is not based on changes in stock prices after the date of grant. 3. c With respect to fair value hedges only: 1. 1 If the entire asset or liability is an instrument with variable cash flows, an implicit fixed-to-variable swap (or similar instrument) perceived to be embedded in a host contract with fixed cash flows 2. 2 For a held-to-maturity debt security, the risk of changes in its fair value attributable to interest rate risk 3. 3 An asset or liability that is remeasured with the changes in fair value attributable to the hedged risk reported currently in earnings 4. 4 An equity investment in a consolidated subsidiary 5. 5 A firm commitment either to enter into a business combination or to acquire or dispose of a subsidiary, a noncontrolling interest, or an equity method investee 6. 6 An equity instrument issued by the entity and classified in stockholders' equity in the statement of financial position 7. 7 A component of an embedded derivative in a hybrid instrument—for example, embedded options in a [hybrid instrument](https://asc.understandingaccounting.org/glossary/h/#hybrid-instrument "A contract that embodies both an embedded derivative and a host contract.") that are required to be considered a single forward contract under paragraph [815-10-25-10](https://asc.understandingaccounting.org/asc/815/10/#815-10-25-10) cannot be designated as items hedged individually in a fair value hedge in which the hedging instrument is a separate, unrelated freestanding option. 4. d With respect to cash flow hedges only: 1. 1 [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 2. 2 If variable cash flows of the forecasted transaction relate to a debt security that is classified as held-to-maturity under Topic 320, the risk of changes in its cash flows attributable to interest rate risk 3. 3 [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-44](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9ea1b2b900c8dda756ff99187a7914861ad2600286ff89575b00a6d9dd1a22d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The earnings exposure criterion specifically precludes hedge accounting for derivative instruments used to hedge items in (b)(3) through (b)(5) in the preceding paragraph. However, intra-entity transactions may present an earnings exposure for a subsidiary in its freestanding financial statements; a hedge of an intra-entity transaction would be eligible for hedge accounting for purposes of those statements. #### Eligibility of Hedging Instruments ##### [815-20-25-45](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:34da35f43183011a1c3fc6c6ad75c9933b4b94248c65e90184df2b9052abcd30 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Either all or a proportion of a derivative instrument (including a compound embedded derivative that is accounted for separately) may be designated as a hedging instrument. Two or more derivative instruments, or proportions thereof, may also be viewed in combination and jointly designated as the hedging instrument. A proportion of a derivative instrument or derivative instruments designated as the hedging instrument shall be expressed as a percentage of the entire derivative instrument(s) so that the profile of risk exposures in the hedging portion of the derivative instrument(s) is the same as that in the entire derivative instrument(s). Subsequent references in the Derivatives and Hedging Topic to a derivative instrument as a hedging instrument include the use of only a proportion of a derivative instrument as a hedging instrument. Whether a written option may be designated as a hedging instrument depends on the terms of both the hedging instrument and the hedged item as discussed beginning in paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). ##### [815-20-25-46](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:48481c80b5fcd04f84c13a1f9c60dfc5bbe1007306803fc02716b12231943cb3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The eligibility criteria for hedging instruments are organized as follows: 1. a [Intra-entity derivatives](https://asc.understandingaccounting.org/glossary/i/#intra-entity-derivative "A derivative instrument contract between two members of a consolidated group.") 2. b [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 3. c Hedging instrument in a cash flow hedge of basis risk 4. d Hedging instruments in hedges of foreign exchange risk 5. e Instruments specifically ineligible for designation as hedging instruments. ##### [815-20-25-46A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ba118a04de21a4b8d1878b11038860a6dc1ecca5ca8a435ed1cfb9f2af5e8253 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is no requirement in this Subtopic that the operating unit with the interest rate, market price, or credit risk exposure be a party to the hedging instrument. Thus, for example, a parent entity's central treasury function can enter into a derivative instrument with a third party and designate it as the hedging instrument in a hedge of a subsidiary's interest rate risk for purposes of the consolidated financial statements. However, if the subsidiary wishes to qualify for hedge accounting of the interest rate exposure in its separate-entity financial statements, the subsidiary (as the reporting entity) shall be a party to the hedging instrument, which can be an intra-entity derivative obtained from the central treasury function. Thus, an intra-entity derivative for interest rate risk can qualify for designation as the hedging instrument in separate-entity financial statements but not in consolidated financial statements. (As used in this guidance, the term _subsidiary_ refers only to a consolidated subsidiary. This guidance shall not be applied directly or by analogy to an equity method investee.) ##### [815-20-25-46B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cf1fd020c06447d821dab308e35b515a6419225f9ad42bdec8c8d55a77929285 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An intra-entity derivative shall not be designated as the hedging instrument if the hedged risk is any of the following: 1. a The risk of changes in the overall fair value or cash flows of the entire hedged item or transaction 2. b The risk of changes in hedged item's or transaction's fair value attributable to changes in the designated benchmark interest rate or cash flows attributable to changes in the contractually specified interest rate or designated benchmark interest rate 3. c The risk of changes in hedged item's or transaction's fair value or cash flows attributable to changes in credit risk. 4. d The risk of variability in cash flows attributable to changes in a contractually specified component to purchase or sell a nonfinancial asset. Similarly, a derivative instrument contract between operating units within a single legal entity shall not be designated as the hedging instrument in a hedge of those risks. Only a derivative instrument with an unrelated third party can be designated as the hedging instrument in a hedge of those risks in consolidated financial statements. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)An intra-entity derivative shall not be designated as the hedging instrument if the hedged risk is any of the following: 1. a The risk of changes in the overall fair value or cash flows of the entire hedged item or transaction 2. b The risk of changes in hedged item's or transaction's fair value attributable to changes in the designated benchmark interest rate or cash flows attributable to changes in the contractually specified interest rate or designated benchmark interest rate 3. c The risk of changes in hedged item's or transaction's fair value or cash flows attributable to changes in credit risk. 4. d The risk of variability in cash flows attributable to changes in a component (or subcomponent) of the price to purchase or sell a nonfinancial asset that meets the conditions in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). Similarly, a derivative instrument contract between operating units within a single legal entity shall not be designated as the hedging instrument in a hedge of those risks. Only a derivative instrument with an unrelated third party can be designated as the hedging instrument in a hedge of those risks in consolidated financial statements. ##### [815-20-25-47](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:d5e3a5bed3dca3fee575bc3266025a80df591e4182e3eafb12f2c26511402aac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-48](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5358264556cd2fba39173526ef593efbf83ddec3004c0e0e9017d7d51bc98393 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-49](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:997472ea31a06dc34bf5eef26b96b50dc206db60d72d75b9d6dd129f59e1b88d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-50](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9b1ffdd3c02cf558452cee32a6ec33298b3d60e023ab8a6f3f5127db4331c1c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a hedging instrument is used to modify the contractually specified interest receipts or payments associated with a recognized financial asset or liability from one variable rate to another variable rate, the hedging instrument shall meet both of the following criteria: 1. a It is a link between both of the following: 1. 1 An existing designated asset (or group of similar assets) with variable cash flows 2. 2 An existing designated liability (or group of similar liabilities) with variable cash flows. 2. b It is highly effective at achieving offsetting cash flows. ##### [815-20-25-51](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:abb0cd9cf5f763cb0dbfc433621a2454173f95c175728c2d0d922e98ac9dd947 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of paragraph [815-20-25-50](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-50), a link exists if both of the following criteria are met: 1. a The basis (that is, the rate index on which the interest rate is based) of one leg of an interest rate swap is the same as the basis of the contractually specified interest receipts for the designated asset. 2. b The basis of the other leg of the swap is the same as the basis of the contractually specified interest payments for the designated liability. In this situation, the criterion in paragraph [815-20-25-15(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) is applied separately to the designated asset and the designated liability. ##### [815-20-25-51A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-51A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:01bb24194b23841f037173fc01532159b73641d74077d35fb4255a4c97611cf0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance on hedging instruments in hedges of foreign exchange risk is organized as follows: 1. a Intra-entity derivatives 2. b Hedging instruments in fair value hedges involving foreign exchange risk 3. c Internal derivatives as hedging instruments in cash flow hedges of foreign exchange risk 4. d Hedging instruments in net investment hedges. ##### [815-20-25-52](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:3efcaf5a5db691d7a34e76ddab121d4a59ea2f1f029e7f4aad4684248df7fffe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A foreign currency derivative instrument that has been entered into with another member of a consolidated group can be a hedging instrument in any of the following hedging relationships only if that other member of the consolidated group has entered into an offsetting contract with an unrelated third party to hedge the exposure it acquired from issuing the derivative instrument to the affiliate that initiated the hedge: 1. a A fair value hedge 2. b A cash flow hedge of a recognized foreign-currency-denominated asset or liability 3. c A net investment hedge in the consolidated financial statements. ##### [815-20-25-53](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9c432ba5513cebce6768afbb40a110af6ab9bdb1d48c4c47073cda4787d9f4ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-46A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46A) states that there is no requirement in this Subtopic that the operating unit with the interest rate, market price, or credit risk exposure be a party to the hedging instrument and provides related guidance. ##### [815-20-25-54](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a66961ca579ef7eefbde1ff1443cf043fcd6b698bc39143a1736968b7df7eee7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An intra-entity derivative can be designated as a hedging instrument in consolidated financial statements if condition (a) is met and either condition (b) or (c) is met: 1. a The hedged risk is either of the following: 1. 1 The risk of changes in fair value or cash flows attributable to changes in a foreign currency exchange rate 2. 2 The foreign exchange risk for a net investment in a foreign operation. 2. b In a fair value hedge or in a cash flow hedge of a recognized foreign-currency-denominated asset or liability or in a net investment hedge in the consolidated financial statements the counterparty (that is, the other member of the consolidated group) has entered into a contract with an unrelated third party that offsets the intra-entity derivative completely, thereby hedging the exposure it acquired from issuing the intra-entity derivative to the affiliate that designated the hedge. 3. c In a foreign currency cash flow hedge of a forecasted borrowing, purchase, or sale or an unrecognized firm commitment the counterparty has entered into a derivative instrument with an unrelated third party to offset the exposure that results from that [internal derivative](https://asc.understandingaccounting.org/glossary/i/#internal-derivative "A foreign currency derivative instrument that has been entered into with another member of a consolidated group (such as a treasury center).") or, if the conditions in paragraphs [815-20-25-62 through 25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) are met, entered into derivative instruments with unrelated third parties that would offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivative instruments. ##### [815-20-25-55](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cd6f47f31873284caba4b933cfbbc1db27300e45d92ff008c4f3891d8441682e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The designation of intra-entity derivatives as hedging instruments for hedges of foreign exchange risk enables entities to continue using a central treasury function for derivative instruments with third parties and still comply with the requirement in paragraph [815-20-25-30(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) that the operating unit with the foreign currency exposure be a party to the hedging instrument. ##### [815-20-25-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-56) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2316f6a5da755ab88bd38765cc32000c511fcc427676e781a96e0db6623a0f27 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-46B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46B) states that an intra-entity derivative shall not be designated as the hedging instrument in other circumstances and provides related guidance. ##### [815-20-25-57](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e0b71618682615ef438ab2b526bf5f91a789299781ca622d13bf19b54fa7db33 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-58](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:26aaa492d744677c94a502ae06a0bcaaf77b0adeba450181b89c7d22137370a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A derivative instrument or a nonderivative [financial instrument](https://asc.understandingaccounting.org/glossary/f/#financial-instrument "Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. All contractual rights (contractual obligations) that are financial instruments meet the definition of asset (liability) set forth in FASB Concepts Statement No. 6, Elements of Financial Statements, although some may not be recognized as assets (liabilities) in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity. (P) December 16, 2024; (N) December 16, 2025105-10-65-9Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. Some contractual rights (contractual obligations) that are financial instruments may not be recognized in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity.") that may give rise to a foreign currency transaction gain or loss under Topic 830 can be designated as hedging changes in the fair value of an unrecognized firm commitment, or a specific portion thereof, attributable to foreign currency exchange rates. The designated hedging relationship qualifies for the accounting specified in Subtopic 815-25 if all the fair value hedge conditions in this Section and the conditions in paragraph [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) are met. ##### [815-20-25-59](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-59) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:68b35762f5fc6708055e59199fe156a2286bad63a732f3789bb9fdeb19c68b0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The carrying basis for a nonderivative financial instrument that gives rise to a foreign currency transaction gain or loss under Subtopic 830-20 is not addressed by this Subtopic. ##### [815-20-25-60](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-60) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fd934e0f11e75faa53702f07216530867bb8222f9ce8c67f2f888f5d25d1eda9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate an intra-entity loan or other payable as the hedging instrument in a foreign currency fair value hedge of an unrecognized firm commitment and qualify for hedge accounting in the consolidated financial statements. That designation is consistent with the ability under paragraphs [815-20-25-58 through 25-59](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) to designate nonderivative instruments as hedging instruments in foreign currency fair value hedges of firm commitments. However, hedge accounting in the consolidated financial statements shall only be applied if the member of the consolidated entity that is the counterparty to the intra-entity loan has entered into a third-party contract that offsets the foreign exchange exposure of that entity's intra-entity loan receivable. That is, the requirement in paragraphs [815-20-25-28 through 25-29](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-28) that an intra-entity derivative instrument designated as a hedging instrument in a foreign currency fair value hedge be offset by a third-party contract would also apply to intra-entity nonderivative instruments designated as hedging instruments. To remain consistent with the notion that the intra-entity contract is simply a conduit for the third-party exposure, an intra-entity loan designated as a hedging instrument shall be offset by a third-party loan (that is, it shall not be offset by a derivative instrument). Hedge accounting shall be applied in consolidation only to those gains and losses occurring during the period that the offsetting third-party loan is in place. ##### [815-20-25-61](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-61) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:52826f2fe4230b2fdcd91b722c23a09cddc095abaf60cca5b7c419f46ffcbd7e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An internal derivative can be a hedging instrument in a foreign currency cash flow hedge of a forecasted borrowing, purchase, or sale or an unrecognized firm commitment in the consolidated financial statements only if both of the following conditions are satisfied: 1. a From the perspective of the member of the consolidated group using the derivative instrument as a hedging instrument (the hedging affiliate), the criteria for foreign currency cash flow hedge accounting otherwise specified in this Section are satisfied. 2. b The member of the consolidated group not using the derivative instrument as a hedging instrument (the issuing affiliate) either: 1. 1 Enters into a derivative instrument with an unrelated third party to offset the exposure that results from that internal derivative 2. 2 If the conditions in paragraphs [815-20-25-62 through 25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) are met, enters into derivative instruments with unrelated third parties that would offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivative instruments. In complying with this guidance the issuing affiliate could enter into a third-party position with neither leg of the third-party position being the issuing affiliate's functional currency to offset its exposure if the amount of the respective currencies of each leg are equivalent with respect to each other based on forward exchange rates. ##### [815-20-25-62](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:690be9c93daded6fd2f420457dd980d70cdd3fc02f2eaba6ca29817a68f3aa71 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an issuing affiliate chooses to offset exposure arising from multiple internal derivatives on an aggregate or net basis, the derivative instruments issued to hedging affiliates shall qualify as cash flow hedges in the consolidated financial statements only if all of the following conditions are satisfied: 1. a The issuing affiliate enters into a derivative instrument with an unrelated third party to offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivatives. 2. b The derivative instrument with the unrelated third party generates equal or closely approximating gains and losses when compared with the aggregate or net losses and gains generated by the derivative instruments issued to affiliates. 3. c Internal derivatives that are not designated as hedging instruments are excluded from the determination of the foreign currency exposure on a net basis that is offset by the third-party derivative instrument. Nonderivative contracts shall not be used as hedging instruments to offset exposures arising from internal derivatives. 4. d Foreign currency exposure that is offset by a single net third-party contract arises from internal derivatives that mature within the same 31-day period and that involve the same currency exposure as the net third-party derivative instrument. The offsetting net third-party derivative instrument related to that group of contracts shall meet all of the following criteria: 1. 1 It offsets the aggregate or net exposure to that currency. 2. 2 It matures within the same 31-day period. 3. 3 It is entered into within three business days after the designation of the internal derivatives as hedging instruments. 5. e The issuing affiliate meets both of the following conditions: 1. 1 It tracks the exposure that it acquires from each hedging affiliate. 2. 2 It maintains documentation supporting linkage of each internal derivative and the offsetting aggregate or net derivative instrument with an unrelated third party. 6. f The issuing affiliate does not alter or terminate the offsetting derivative instrument with an unrelated third party unless the hedging affiliate initiates that action. ##### [815-20-25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:875c9385a2b09d4c085b6a2f81d52b85943b387086be16dae7face92d79fbf93 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the issuing affiliate alters or terminates any offsetting third-party derivative (which should be rare), the hedging affiliate shall prospectively cease hedge accounting for the internal derivatives that are offset by that third-party derivative instrument. ##### [815-20-25-64](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0777370bb65650c6d6ec32d9c8072f6e90337026b62b3cb50c5fa10912fef39d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A member of a consolidated group cannot meet the offsetting criteria by offsetting exposures arising from multiple internal derivative contracts on a net basis for foreign currency cash flow exposures related to recognized foreign-currency-denominated assets or liabilities. That prohibition includes situations in which a recognized foreign-currency-denominated asset or liability in a fair value hedge or cash flow hedge results from the occurrence of a specifically identified forecasted transaction initially designated as a cash flow hedge. ##### [815-20-25-65](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1a5926a4d323c80986a227d07677e22564b0ee4ae5974e9b9d6b2197f4279421 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A qualifying foreign currency cash flow hedge shall be accounted for as specified in Subtopic 815-30. ##### [815-20-25-66](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e3a45140a39de68d36ab4f0340923ec8caa02941a37095f1e619aeef3f0b2948 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A derivative instrument or a nonderivative financial instrument that may give rise to a foreign currency transaction gain or loss under Subtopic 830-20 can be designated as hedging the foreign currency exposure of a net investment in a foreign operation provided the conditions in paragraph [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) are met. A nonderivative financial instrument that is reported at fair value does not give rise to a foreign currency transaction gain or loss under Subtopic 830-20 and, thus, cannot be designated as hedging the foreign currency exposure of a net investment in a foreign operation. ##### [815-20-25-67](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f9c5ac8d59f30f6787e6015f95265799c84734df32bc788b594e5e5c85242d53 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Hedging instruments that are eligible for designation in a net investment hedge include, among others, both of the following: 1. a A receive-variable-rate, pay-variable-rate cross-currency interest rate swap, provided both of the following conditions are met: 1. 1 The interest rates are based on the same currencies contained in the swap. 2. 2 Both legs of the swap have the same repricing intervals and dates. 2. b A receive-fixed-rate, pay-fixed-rate cross-currency interest rate swap. A cross-currency interest rate swap that has two fixed legs is not a compound derivative instrument and, therefore, is not subject to the criteria in (a). ##### [815-20-25-68](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b90f8deb9cd7f6d41eb11a86435daa36420c7a9e7b386a51c5e8df7ccceb8504 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A cross-currency interest rate swap that has either two variable legs or two fixed legs has a fair value that is primarily driven by changes in foreign exchange rates rather than changes in interest rates. Therefore, foreign exchange risk, rather than interest rate risk, is the dominant risk exposure in such a swap. ##### [815-20-25-68A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-68A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:664f3be325257ce16cc3862540ee30e7ac6a92d2c122140da54899df8c2595cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the guidance in paragraph [815-20-25-71(d)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-71), a cross-currency interest rate swap with one fixed-rate leg and one floating-rate leg cannot be designated as the hedging instrument in a net investment hedge. ##### [815-20-25-69](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:141d83308fe708628a917ee6ffa111f9ddf604254493f268d98b8387b713df8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To designate a derivative instrument as a hedge of a net investment, an entity shall have an expectation that the derivative instrument will be effective as an economic hedge of foreign exchange risk associated with the hedged net investment. Accordingly, if any difference in [notional amount](https://asc.understandingaccounting.org/glossary/n/#notional-amount "A number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument. Sometimes other names are used. For example, the notional amount is called a face amount in some contracts."), currencies, or underlyings is present, the entity shall establish an expectation that the actual derivative instrument designated as the hedging instrument will be effective as an economic hedge. ##### [815-20-25-70](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a2f3fea8d5128412cf7522c50c775a0a0e77e5d3bf0d0311786eb7b2315ce71c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, if an entity designates a derivative instrument that has an underlying exchange rate involving a currency other than the functional currency of the net investment, that exchange rate shall be expected to move in tandem with the exchange rate between the functional currency of the hedged net investment and the investor's functional currency. Use of a currency different from the exposed currency is not limited to cases in which it is not practical or feasible to hedge in the exposed currency if all other qualifying criteria are met. ##### [815-20-25-71](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-71) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e64aa2d718335f0e86d7bdbb2c26f36350e8baf87b09c2a42ddadfb7a54a7179 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Besides those hedging instruments that fail to meet the specified eligibility criteria, none of the following shall be designated as a hedging instrument for the respective hedges: 1. a With respect to fair value hedges, cash flow hedges, and net investment hedges: 1. 1 A nonderivative instrument, such as a U.S. Treasury note, except as provided in paragraphs [815-20-25-58 through 25-59](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) and [815-20-25-66](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-66) 2. 2 Components of a compound derivative instrument representing different risks 3. 3 A hybrid financial instrument that an entity irrevocably elects under paragraph [815-15-25-4](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-4) to initially and subsequently measure in its entirety at fair value (with changes in fair value recognized in earnings) 4. 4 A hybrid instrument for which an entity cannot reliably identify and measure the embedded derivative instrument that paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1) requires be separated from the host contract 5. 5 Any of the individual components of a compound embedded derivative that is separated from the host contract. 2. b With respect to fair value hedges only: 1. 1 A nonderivative financial instrument as the hedging instrument in a fair value hedge of the foreign currency exposure of a recognized asset or liability. 2. 2 A nonderivative financial instrument as the hedging instrument in a fair value hedge of the foreign currency exposure of an available-for-sale debt security. 3. c With respect to cash flow hedges only: 1. 1 A nonderivative financial instrument as a hedging instrument in a foreign currency cash flow hedge. 4. d With respect to net investment hedges only: 1. 1 A compound derivative instrument that has multiple underlyings—one based on foreign exchange risk and one or more not based on foreign exchange (for example, the price of gold or the price of an S&P 500 contract), except as indicated in paragraph [815-20-25-67](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-67) for certain cross-currency interest rate swaps 2. 2 A derivative instrument and a cash instrument in combination as a single hedging instrument (that is, an entity shall not consider a separate derivative instrument and a cash instrument as a single synthetic instrument for accounting purposes) 3. 3 [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). #### Hedge Effectiveness ##### [815-20-25-72](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-72) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:eb74b327bc6fa212ff30257d76d58b4ed535e08f0a0a57fc17b4c8106828d17c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedge effectiveness criteria are organized as follows: 1. a Hedge effectiveness criteria applicable to both fair value hedges and cash flow hedges 2. b Hedge effectiveness criterion applicable to fair value hedges only 3. c Hedge effectiveness criteria applicable to cash flow hedges only 4. d [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-73](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-73) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a5e112096713f1e905e6791b038b288b3b2e5a353b08bf92582d563542fcfbc9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Sections 815-25-55 and 815-30-55 illustrate some ways in which an entity may assess hedge effectiveness for specific strategies. The Examples are not intended to imply that other reasonable methods are precluded. However, not all possible methods are reasonable or consistent with this Subtopic. Those Sections also discuss some methods of assessing hedge effectiveness that are not consistent with this Subtopic and thus may not be used. ##### [815-20-25-74](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-74) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e9f5690d9d43b997df8857a1d4101cfc4a5806186f7ffb1874eba61ae26cbc09 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses hedge effectiveness criteria applicable to both fair value hedges and cash flow hedges. ##### [815-20-25-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5e9d19b9a596193d6b62e33588d2302ad15083e7423bdbfdf2024c3daf7379fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To qualify for hedge accounting, the hedging relationship, both at inception of the hedge and on an ongoing basis, shall be expected to be highly effective in achieving either of the following: 1. a Offsetting changes in fair value attributable to the hedged risk during the period that the hedge is designated (if a fair value hedge) 2. b Offsetting cash flows attributable to the hedged risk during the term of the hedge (if a cash flow hedge), except as indicated in paragraph [815-20-25-50](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-50). ##### [815-20-25-76](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-76) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5377f887b5d0146838dc0392c95a61b0c3f6bea87f4d137f60cb8ae9a6855645 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the hedging instrument (such as an at-the-money option contract) provides only one-sided offset of the hedged risk, either of the following conditions shall be met: 1. a The increases (or decreases) in the fair value of the hedging instrument are expected to be highly effective in offsetting the decreases (or increases) in the fair value of the hedged item (if a fair value hedge). 2. b The cash inflows (outflows) from the hedging instrument are expected to be highly effective in offsetting the corresponding change in the cash outflows or inflows of the hedged transaction (if a cash flow hedge). ##### [815-20-25-77](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-77) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5aa976eadc917a70de037d91484855d71831348ebd484b3974ee4d451432704b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There would be a mismatch between the change in fair value or cash flows of the hedging instrument and the change in fair value or cash flows of the hedged item or hedged transaction in any of the following circumstances, among others: 1. a A difference between the basis of the hedging instrument and the hedged item or hedged transaction, to the extent that those bases do not move in tandem 2. b Differences in critical terms of the hedging instrument and hedged item or hedged transaction, such as differences in any of the following: 1. 1 Notional amounts 2. 2 Maturities 3. 3 Quantity 4. 4 Location (not applicable for hedging relationships in which the variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") is designated as the hedged risk) 5. 5 Delivery dates. 3. c A change in the counterparty's creditworthiness. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)There would be a mismatch between the change in fair value or cash flows of the hedging instrument and the change in fair value or cash flows of the hedged item or hedged transaction in any of the following circumstances, among others: 1. a A difference between the basis of the hedging instrument and the hedged item or hedged transaction, to the extent that those bases do not move in tandem 2. b Differences in critical terms of the hedging instrument and hedged item or hedged transaction, such as differences in any of the following: 1. 1 Notional amounts 2. 2 Maturities 3. 3 Quantity 4. 4 Location (not applicable if the hedging instrument’s underlying and the designated hedged risk are the same) 5. 5 Delivery dates. 3. c A change in the counterparty's creditworthiness. ##### [815-20-25-78](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-78) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:60e19f449f97c5d0d5a18b92cc73b88c47cd8851506da30eb74ce6e79694d385 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-55-62](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-62) discusses basis differences in cash flow hedges of interest rate risk. ##### [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:d040771907845b4778b4928c97290e64b8305bb4eb31a0ba2f7b8cd3e60186ec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall consider hedge effectiveness in two different ways—in prospective considerations and in retrospective evaluations: 1. a Prospective considerations. The entity's expectation that the relationship will be highly effective over future periods in achieving offsetting changes in fair value or cash flows, which is forward looking, must be assessed on a quantitative basis at hedge inception unless one of the exceptions in paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) is met. Prospective assessments shall be subsequently performed whenever financial statements or earnings are reported and at least every three months. The entity shall elect at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) whether to perform subsequent assessments on a quantitative or qualitative basis. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of hedge effectiveness. A quantitative assessment can be based on regression or other statistical analysis of past changes in fair values or cash flows as well as on other relevant information. The quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the period used to assess whether the requirement for expectation of highly effective offset is satisfied. The quantitative prospective assessment may not be limited only to the likely or expected changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument or the hedged items. Generally, the process of formulating an expectation regarding the effectiveness of a proposed hedging relationship involves a probability-weighted analysis of the possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the hedge period. Therefore, a probable future change in fair value will be more heavily weighted than a reasonably possible future change. That calculation technique is consistent with the definition of the term [expected cash flow](https://asc.understandingaccounting.org/glossary/e/#expected-cash-flow "The probability-weighted average (that is, mean of the distribution) of possible future cash flows.") in FASB Concepts Statement No. 7, _Using Cash Flow Information and Present Value in Accounting Measurements_. 2. b Retrospective evaluations. An assessment of effectiveness may be performed on a quantitative or qualitative basis on the basis of the entity's election at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). That assessment shall be performed whenever financial statements or earnings are reported, and at least every three months. See paragraphs [815-20-35-2 through 35-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2) for further guidance. At inception of the hedge, an entity electing a dollar-offset approach to perform retrospective evaluations on a quantitative basis may choose either a period-by-period approach or a cumulative approach in designating how effectiveness of a fair value hedge or of a cash flow hedge will be assessed retrospectively under that approach, depending on the nature of the hedge documented in accordance with paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). For example, an entity may decide that the cumulative approach is generally preferred, yet may wish to use the period-by-period approach in certain circumstances. See paragraphs [815-20-35-5 through 35-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-5) for further guidance. Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance: [105-10-65-9](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-9)An entity shall consider hedge effectiveness in two different ways—in prospective considerations and in retrospective evaluations: 1. a Prospective considerations. The entity's expectation that the relationship will be highly effective over future periods in achieving offsetting changes in fair value or cash flows, which is forward looking, must be assessed on a quantitative basis at hedge inception unless one of the exceptions in paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) is met. Prospective assessments shall be subsequently performed whenever financial statements or earnings are reported and at least every three months. The entity shall elect at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) whether to perform subsequent assessments on a quantitative or qualitative basis. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of hedge effectiveness. A quantitative assessment can be based on regression or other statistical analysis of past changes in fair values or cash flows as well as on other relevant information. The quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the period used to assess whether the requirement for expectation of highly effective offset is satisfied. The quantitative prospective assessment may not be limited only to the likely or expected changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument or the hedged items. Generally, the process of formulating an expectation regarding the effectiveness of a proposed hedging relationship involves a probability-weighted analysis of the possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the hedge period. Therefore, a probable future change in fair value will be more heavily weighted than a reasonably possible future change. That calculation technique is consistent with the definition of the term [expected cash flow](https://asc.understandingaccounting.org/glossary/e/#expected-cash-flow "The probability-weighted average (that is, mean of the distribution) of possible future cash flows."). 2. b Retrospective evaluations. An assessment of effectiveness may be performed on a quantitative or qualitative basis on the basis of the entity's election at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). That assessment shall be performed whenever financial statements or earnings are reported, and at least every three months. See paragraphs [815-20-35-2 through 35-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2) for further guidance. At inception of the hedge, an entity electing a dollar-offset approach to perform retrospective evaluations on a quantitative basis may choose either a period-by-period approach or a cumulative approach in designating how effectiveness of a fair value hedge or of a cash flow hedge will be assessed retrospectively under that approach, depending on the nature of the hedge documented in accordance with paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). For example, an entity may decide that the cumulative approach is generally preferred, yet may wish to use the period-by-period approach in certain circumstances. See paragraphs [815-20-35-5 through 35-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-5) for further guidance. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)An entity shall consider hedge effectiveness in two different ways—in prospective considerations and in retrospective evaluations: 1. a Prospective considerations. The entity's expectation that the relationship will be highly effective over future periods in achieving offsetting changes in fair value or cash flows, which is forward looking, must be assessed on a quantitative basis at hedge inception unless one of the exceptions in paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) is met. Prospective assessments shall be subsequently performed whenever financial statements or earnings are reported and at least every three months. The entity shall elect at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) whether to perform subsequent assessments on a quantitative or qualitative basis. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of hedge effectiveness. A quantitative assessment can be based on regression or other statistical analysis of past changes in fair values or cash flows as well as on other relevant information. Except as described in paragraph [815-20-25-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79B), the quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the period used to assess whether the requirement for expectation of highly effective offset is satisfied. The quantitative prospective assessment may not be limited only to the likely or expected changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument or the hedged items. Generally, the process of formulating an expectation regarding the effectiveness of a proposed hedging relationship involves a probability-weighted analysis of the possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the hedge period. Therefore, a probable future change in fair value will be more heavily weighted than a reasonably possible future change. That calculation technique is consistent with the definition of the term [expected cash flow](https://asc.understandingaccounting.org/glossary/e/#expected-cash-flow "The probability-weighted average (that is, mean of the distribution) of possible future cash flows."). 2. b Retrospective evaluations. An assessment of effectiveness may be performed on a quantitative or qualitative basis on the basis of the entity's election at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). That assessment shall be performed whenever financial statements or earnings are reported, and at least every three months. See paragraphs [815-20-35-2 through 35-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2) for further guidance. At inception of the hedge, an entity electing a dollar-offset approach to perform retrospective evaluations on a quantitative basis may choose either a period-by-period approach or a cumulative approach in designating how effectiveness of a fair value hedge or of a cash flow hedge will be assessed retrospectively under that approach, depending on the nature of the hedge documented in accordance with paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). For example, an entity may decide that the cumulative approach is generally preferred, yet may wish to use the period-by-period approach in certain circumstances. See paragraphs [815-20-35-5 through 35-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-5) for further guidance. See paragraphs [815-30-35-37F](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37F) and [815-30-35-37L through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37L) for guidance on the retrospective effectiveness assessment for a cash flow hedge within the scope of paragraph [815-30-35-37B](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) related to choose-your-rate debt. ##### [815-20-25-79A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:bda0bbf3b633a36d612cc1146bbc054f9546a09fa7913cb11737c2a577807fa1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [815-20-25-139 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) about the timing of hedge effectiveness assessments required by paragraph [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) for a private company that is not a financial institution or a not-for-profit entity (except for a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market). Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)See paragraphs [815-20-25-139 through 25-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) about the timing of hedge effectiveness assessments required by paragraph [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) for a private company that is not a financial institution or a not-for-profit entity (except for a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market). ##### [815-20-25-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:537e5d759f8d2a9499460b6a1608c5f4f6de988c9d5fb81742d33c6e44be7758 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)For a cash flow hedge of forecasted interest payments on a choose-your-rate debt instrument for which an entity chooses to apply the guidance in paragraphs [815-30-35-37B through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) , the quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in cash flows of the forecasted transaction attributable to only the then-designated contractually specified interest rate. An entity shall not consider possible changes in cash flows of the forecasted transaction attributable to a contractually specified interest rate that may be designated in the future. The quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in cash flows of the derivative instrument in accordance with paragraph [815-20-25-79(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79). ##### [815-20-25-80](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-80) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ac8d5cc2cf5421e2b1810ea863f7c78e7690b67a773c965c1705c12787486d37 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All assessments of effectiveness shall be consistent with the originally documented risk management strategy for that particular hedging relationship. An entity shall use the quantitative effectiveness assessment method defined at hedge inception consistently for the periods that the entity either elects or is required to assess hedge effectiveness on a quantitative basis. 1. a [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-81](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:40033f69337bbb43358a94b34357ef8bb1c596b4c197415fae9e6ee69eb43d9c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic does not specify a single method for assessing whether a hedge is expected to be highly effective. The method of assessing effectiveness shall be reasonable. The appropriateness of a given method of assessing hedge effectiveness depends on the nature of the risk being hedged and the type of hedging instrument used. Ordinarily, an entity shall assess effectiveness for similar hedges in a similar manner, including whether a component of the gain or loss on a derivative instrument is excluded in assessing effectiveness for similar hedges. Use of different methods for similar hedges shall be justified. The mechanics of isolating the change in [time value of an option](https://asc.understandingaccounting.org/glossary/t/#time-value-of-an-option "The time value of an option is equal to the fair value of an option less its intrinsic value.") discussed beginning in paragraph [815-20-25-98](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-98) also shall be applied consistently. ##### [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2b9bfbbd742fe827d8794e4876f2a6f7545781a03c76eb1b1ead79751683b691 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In defining how hedge effectiveness will be assessed, an entity shall specify whether it will include in that assessment all of the gain or loss on a hedging instrument. An entity may exclude all or a part of the hedging instrument's time value from the assessment of hedge effectiveness, as follows: 1. a If the effectiveness of a hedge with an option is assessed based on changes in the option's intrinsic value, the change in the time value of the option would be excluded from the assessment of hedge effectiveness. 2. b If the effectiveness of a hedge with an option is assessed based on changes in the option's minimum value, that is, its intrinsic value plus the effect of discounting, the change in the volatility value of the contract shall be excluded from the assessment of hedge effectiveness. 3. c An entity may exclude any of the following components of the change in an option's time value from the assessment of hedge effectiveness: 1. 1 The portion of the change in time value attributable to the passage of time (theta) 2. 2 The portion of the change in time value attributable to changes due to volatility (vega) 3. 3 The portion of the change in time value attributable to changes due to interest rates (rho). 4. d If the effectiveness of a hedge with a forward contract or futures contract is assessed based on changes in fair value attributable to changes in spot prices, the change in the fair value of the contract related to the changes in the difference between the spot price and the forward or futures price shall be excluded from the assessment of hedge effectiveness. 5. e An entity may exclude the portion of the change in fair value of a currency swap attributable to a cross-currency basis spread. ##### [815-20-25-83](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4043837c3bd320e8ee1e5a97c2307790342c28f347532ede0f794084339d31db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. No other components of a gain or loss on the designated hedging instrument shall be excluded from the assessment of hedge effectiveness nor shall an entity exclude any aspect of a change in an option's value from the assessment of hedge effectiveness that is not one of the permissible components of the change in an option's time value. For example, an entity shall not exclude from the assessment of hedge effectiveness the portion of the change in time value attributable to changes in other market variables (that is, other than rho and vega). ##### [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8feccd926d0f927faf6dee1b979cfe8838a63454395f5e4f740e0355687d13a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For fair value and cash flow hedges, the initial value of the component excluded from the assessment of effectiveness shall be recognized in earnings using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in earnings under that systematic and rational method shall be recognized in other comprehensive income. Example 31 beginning in paragraph [815-20-55-235](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-235) illustrates this approach for a cash flow hedge in which the hedging instrument is an option and the entire time value is excluded from the assessment of effectiveness. ##### [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:6c0cd81a8d1a848bc97f4d6fd432f39f054760b1c575652575d21befcbef70c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For fair value and cash flow hedges, an entity alternatively may elect to record changes in the fair value of the excluded component currently in earnings. This election shall be applied consistently to similar hedges in accordance with paragraph [815-20-25-81](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) and shall be disclosed in accordance with paragraph [815-10-50-4EEEE](https://asc.understandingaccounting.org/asc/815/10/#815-10-50-4EEEE). ##### [815-20-25-84](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fa5884cc573fd2532416b76c7599cd4a8c7c566342bf8565cb12b20f28241b6a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the critical terms of the hedging instrument and of the hedged item or hedged forecasted transaction are the same, the entity could conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. For example, an entity may assume that a hedge of a forecasted purchase of a commodity with a forward contract will be perfectly effective if all of the following criteria are met: 1. a The forward contract is for purchase of the same quantity of the same commodity at the same time and location as the hedged forecasted purchase. Location differences do not need to be considered if an entity designates the variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") as the hedged risk and the requirements in paragraphs [815-20-25-22A through 25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) are met. 2. b The fair value of the forward contract at inception is zero. 3. c Either of the following criteria is met: 1. 1 The change in the discount or premium on the forward contract is excluded from the assessment of effectiveness pursuant to paragraphs [815-20-25-81 through 25-83](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) . 2. 2 The change in expected cash flows on the forecasted transaction is based on the forward price for the commodity. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)If the critical terms of the hedging instrument and of the hedged item or hedged forecasted transaction are the same, the entity could conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. For example, an entity may assume that a hedge of a forecasted purchase of a commodity with a forward contract will be perfectly effective if all of the following criteria are met: 1. a The forward contract is for purchase of the same quantity of the same commodity at the same time and location as the hedged forecasted purchase. Location differences do not need to be considered if the forward contract’s underlying and the designated hedged risk are the same. 2. b The fair value of the forward contract at inception is zero. 3. c Either of the following criteria is met: 1. 1 The change in the discount or premium on the forward contract is excluded from the assessment of effectiveness pursuant to paragraphs [815-20-25-81 through 25-83](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) . 2. 2 The change in expected cash flows on the forecasted transaction is based on the forward price for the commodity. ##### [815-20-25-84A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:09e68f61b8cdfb0d6b8cce6d28906ba6568233a3bcbd91581f4126ed2ea32f7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a cash flow hedge of a group of forecasted transactions in accordance with paragraph [815-20-25-15(a)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), an entity may assume that the timing in which the hedged transactions are expected to occur and the maturity date of the hedging instrument match in accordance with paragraph [815-20-25-84(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) if those forecasted transactions occur and the derivative matures within the same 31-day period or fiscal month. ##### [815-20-25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-85) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:538f7c852a10550a4b10ccd47106201cd86a19e8874e68d6df2cca8ae4b8891b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If all of the criteria in paragraphs [815-20-25-84 through 25-84A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) are met, an entity shall still perform and document an assessment of hedge effectiveness at the inception of the hedging relationship and, as discussed beginning in paragraph [815-20-35-9](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-9), on an ongoing basis throughout the hedge period. No quantitative effectiveness assessment is required at hedge inception if the criteria in paragraphs [815-20-25-84 through 25-84A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) are met (see paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3)). ##### [815-20-25-86](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-86) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f40573f3b119d0a694123795fe27577afa69e9f744ed5f3ef086cb13967686d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The remainder of this guidance on hedge effectiveness criteria applicable to both fair value hedges and cash flow hedges is organized as follows: 1. a Hedge effectiveness when the hedging instrument is an option or combination of options 2. b Hedge effectiveness when hedged exposure is more limited than hedging instrument 3. c Hedge effectiveness during designated hedge period 4. d Assuming perfect effectiveness in a hedge with an interest rate swap (the shortcut method). ##### [815-20-25-87](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-87) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0dd6aaa1d29fc8b5ea27f42c0054009a3e69bd24fc3cdff97c143858accdfe59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedge effectiveness criteria applicable to options and combinations of options are organized as follows: 1. a Determining whether a combination of options is net written 2. b Hedge effectiveness of written options 3. c Hedge effectiveness of options in general. ##### [815-20-25-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f532469c96202e2633164c7b2440a2ff1c46956fe138e6ffe9e2ea80f39f2ad5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses how an entity shall determine whether a combination of options is considered a net written option subject to the requirements of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). A combination of options (for example, an interest rate collar) entered into contemporaneously shall be considered a written option if either at inception or over the life of the contracts a net premium is received in cash or as a favorable rate or other term. Furthermore, a derivative instrument that results from combining a written option and any other non-option derivative instrument shall be considered a written option. The determination of whether a combination of options is considered a net written option depends in part on whether strike prices and notional amounts of the options remain constant. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)
Editor's Note: Paragraph 815-20-25-88 will be amended upon transition, together with the preceding headings:
• • > Hedge Effectiveness When the Hedging Instrument Is an Option or Combination of Instruments
• • • > Determining Whether a Combination of Instruments Is Net Written
This guidance addresses how an entity shall determine whether a combination of options is considered a net written option subject to the requirements of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). A combination of options (for example, an interest rate collar) entered into contemporaneously shall be considered a written option if either at inception or over the life of the contracts a net premium is received in cash or as a favorable rate or other term. The determination of whether a combination of options is considered a net written option depends in part on whether strike prices and notional amounts of the options remain constant. Furthermore, a derivative instrument that results from combining a written option and any other non-option derivative instrument shall be considered a written option unless all of the following criteria are satisfied: 1. a The derivative is designated as the hedging instrument in a cash flow hedge or fair value hedge of interest rate risk (including the interest rate risk portion of a hedge of both interest rate risk and foreign exchange risk). 2. b The hedging instrument is a combination of a written option and a swap. 3. c The notional amount of the written option matches the notional amount of the swap. For example, an entity designates a receive-fixed, pay-variable interest rate swap with a 1 percent floor and a variable leg that is indexed to Daily SOFR as the hedging instrument in a cash flow hedge of interest rate risk. The notional amounts of the interest rate swap and the interest rate floor match. The forecasted transactions are designated as the interest payments on a portfolio of variable-rate loans that are indexed to 1-Month Term SOFR with a 1 percent floor. The combination of the interest rate swap and the interest rate floor is not considered a net written option. Therefore, the entity would not apply the net written option test to that hedging relationship. ##### [815-20-25-89](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9f0edcc420ecf7b10ed1b44a24f64324c8476f758495c188461f3f14e30a388e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a combination of options in which the strike price and the notional amount in both the written option component and the purchased option component remain constant over the life of the respective component, that combination of options would be considered a net purchased option or a zero cost collar (that is, the combination shall not be considered a net written option subject to the requirements of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94)) provided all of the following conditions are met: 1. a No net premium is received. 2. b The components of the combination of options are based on the same underlying. 3. c The components of the combination of options have the same maturity date. 4. d The notional amount of the written option component is not greater than the notional amount of the purchased option component. ##### [815-20-25-90](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-90) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4d54d733fc4fcc40719cf41c2c336a475b0e50cd46bad3b98e670d6ee9b7fc3e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the combination of options does not meet all of those conditions, it shall be subject to the test in paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). For example, a combination of options having different underlying indexes, such as a collar containing a written floor based on three-month U.S. Treasury rates and a purchased cap based on three-month London Interbank Offered Rate (LIBOR), shall not be considered a net purchased option or a zero cost collar even though those rates may be highly correlated. ##### [815-20-25-91](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-91) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:02b8fe12e98c699c7c19b94b07650421c887574c80db61751e5ce9dd946b7cb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If either the written option component or the purchased option component for a combination of options has either strike prices or notional amounts that do not remain constant over the life of the respective component, the assessment to determine whether that combination of options can be considered not to be a written option under paragraph [815-20-25-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88) shall be evaluated with respect to each date that either the strike prices or the notional amounts change within the contractual term from inception to maturity. ##### [815-20-25-92](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-92) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:dfe2fc1fee2ab420b93845089145b9afdf7fc5bbe5bd82620cd8f53bbf6c6b31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Even though that assessment is made on the date that a combination of options is designated as a hedging instrument (to determine the applicability of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94)), it shall consider the receipt of a net premium (in cash or as a favorable rate or other term) from that combination of options at each point in time that either the strike prices or the notional amounts change, such as either of the following circumstances: 1. a If strike prices fluctuate over the life of a combination of options and no net premium is received at inception, a net premium will typically be received as a favorable term in one or more reporting periods within the contractual term from inception to maturity. 2. b If notional amounts fluctuate over the life of a combination of options and no net premium is received at inception, a net premium or a favorable term will typically be received in one or more periods within the contractual term from inception to maturity. ##### [815-20-25-93](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-93) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b0447cf22efaf638a3db8e96add10171ca65d69d73b8fc492545b663b716d5ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition, a combination of options in which either the written option component or the purchased option component has either strike prices or notional amounts that do not remain constant over the life of the respective component shall satisfy all of the conditions in paragraph [815-20-25-89](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89) to be considered not to be a written option (that is, to be considered to be a net purchased option or zero cost collar) under paragraph [815-20-25-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88). For example, if the notional amount of the written option component is greater than the notional amount of the purchased option component at any date that the notional amount changes within the contractual term from inception to maturity, the combination of options shall be considered to be a written option under paragraph [815-20-25-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88) and, thus, subject to the criteria in the following paragraph. ##### [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2053e6e40fb4103cc053c53030b419c6b812c5feca6f2699134ea168b2855183 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a written option is designated as hedging a recognized asset or liability or an unrecognized firm commitment (if a fair value hedge) or the variability in cash flows for a recognized asset or liability or an unrecognized firm commitment (if a cash flow hedge), the combination of the hedged item and the written option provides either of the following: 1. a At least as much potential for gains as a result of a favorable change in the fair value of the combined instruments (that is, the written option and the hedged item, such as an embedded purchased option) as exposure to losses from an unfavorable change in their combined fair value (if a fair value hedge) 2. b At least as much potential for favorable cash flows as exposure to unfavorable cash flows (if a cash flow hedge). ##### [815-20-25-95](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-95) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9bbdaf155e8f8f85805bd616a72ef64664858323cb44211fb6a2f33330c03806 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The written-option test in the preceding paragraph shall be applied only at inception of the hedging relationship and is met if all possible percentage favorable changes in the underlying (from zero percent to 100 percent) would provide either of the following: 1. a At least as much gain as the loss that would be incurred from an unfavorable change in the underlying of the same percentage (if a fair value hedge) 2. b At least as much favorable cash flows as the unfavorable cash flows that would be incurred from an unfavorable change in the underlying of the same percentage (if a cash flow hedge). ##### [815-20-25-96](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-96) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:17c837c1c071484bf771f8e1c91fd25a01c6a14205db98f513a0640cdfcbd560 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The time value of a written option (or net written option) may be excluded from the written-option test if, in defining how hedge effectiveness will be assessed, the entity specifies that it will base that assessment on only changes in the option's intrinsic value. In that circumstance, the change in the time value of the options would be excluded from the assessment of hedge effectiveness in accordance with paragraph [815-20-25-82(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82). ##### [815-20-25-97](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-97) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f9395c364600f0b35fac83cd08e6e70e57325d9cec7f3a1edf259a126da17d4c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When applying the written-option test to determine whether there is symmetry of the gain and loss potential of the combined hedged position for all possible percentage changes in the underlying, an entity is permitted to measure the change in the intrinsic value of the written option (or net written option) combined with the change in fair value of the hedged item. ##### [815-20-25-98](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-98) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4f5f893e0ff85e7d0389e6191629a04b219063ad2c233c3343371fb7937306b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In computing the changes in an option's time value that would be excluded from the assessment of hedge effectiveness, an entity shall use a technique that appropriately isolates those aspects of the change in time value. Generally, to allocate the total change in an option's time value to its different aspects—the passage of time and the market variables—the change in time value attributable to the first aspect to be isolated is determined by holding all other aspects constant as of the beginning of the period. Each remaining aspect of the change in time value is then determined in turn in a specified order based on the ending values of the previously isolated aspects. ##### [815-20-25-99](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-99) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:20adb86ece2bd376fd96d28b0c6c0ff34aae6c83eb3535330c84ca8676431b91 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on that general methodology, if only one aspect of the change in time value is excluded from the assessment of hedge effectiveness (for example, theta), that aspect shall be the first aspect for which the change in time value is computed and would be determined by holding all other parameters constant for the period used for assessing hedge effectiveness. However, if more than one aspect of the change in time value is excluded from the assessment of hedge effectiveness (for example, theta and vega), an entity shall determine the amount of that change in time value by isolating each of those two aspects in turn in a prespecified order (one first, the other second). The second aspect to be isolated would be based on the ending value of the first isolated aspect and the beginning values of the remaining aspects. The portion of the change in time value that is included in the assessment of effectiveness shall be determined by deducting from the total change in time value the portion of the change in time value attributable to excluded components. ##### [815-20-25-100](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-100) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:6090095690e93f72a3b42a66cef62f52870ec89e51cbe407280a03cf17697e1c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate as the hedging instrument in a fair value hedge or cash flow hedge a derivative instrument that does not have a limited exposure comparable to the limited exposure of the hedged item to the risk being hedged. However, to make that designation, in accordance with paragraph [815-20-25-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75), the entity shall establish that the hedging relationship is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period that the hedge is designated. See paragraph [815-20-25-79(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) for additional guidance on prospective considerations of hedge effectiveness in this circumstance. ##### [815-20-25-101](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-101) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8fb77f6e1a4710965b8c67867b999fb71a371212507c00ace2aea50b9530fdba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. It is inappropriate under this Subtopic for an entity to designate a derivative instrument as the hedging instrument if the entity expects that the derivative instrument will not be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period that the hedge is designated, unless the entity has documented undertaking a dynamic hedging strategy in which it has committed itself to an ongoing repositioning strategy for its hedging relationship. ##### [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:bb20404f469747199dafb31023810a175943e0187f90bbb27d4fd2d84339514e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The conditions for the shortcut method do not determine which hedging relationships qualify for hedge accounting; rather, those conditions determine which hedging relationships qualify for a shortcut version of hedge accounting that assumes perfect hedge effectiveness. If all of the applicable conditions in the list in paragraph [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) are met, an entity may assume perfect effectiveness in a hedging relationship of interest rate risk involving a recognized interest-bearing asset or liability (or a firm commitment arising on the trade \[pricing\] date to purchase or issue an interest-bearing asset or liability) and an interest rate swap (or a compound hedging instrument composed of an interest rate swap and a mirror-image call or put option as discussed in paragraph [815-20-25-104\[e\]](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104)) provided that, in the case of a firm commitment, the trade date of the asset or liability differs from its settlement date due to generally established conventions in the marketplace in which the transaction is executed. The shortcut method's application shall be limited to hedging relationships that meet each and every applicable condition. That is, all the conditions applicable to fair value hedges shall be met to apply the shortcut method to a fair value hedge, and all the conditions applicable to cash flow hedges shall be met to apply the shortcut method to a cash flow hedge. A hedging relationship cannot qualify for application of the shortcut method based on an assumption of perfect effectiveness justified by applying other criteria. The verb _match_ is used in the specified conditions in the list to mean _be exactly the same_ or _correspond exactly_. ##### [815-20-25-103](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-103) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c9530a5581728592cc02f3830359278e4a7c4fd3cb1aaab72540d167fdc71d39 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Implicit in the conditions for the shortcut method is the requirement that a basis exist for concluding on an ongoing basis that the hedging relationship is expected to be highly effective in achieving offsetting changes in fair values or cash flows. In applying the shortcut method, an entity shall consider the likelihood of the counterparty's compliance with the contractual terms of the hedging derivative that require the counterparty to make payments to the entity. ##### [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:27e1b964d1e7d9cbc0f08a5b16434c897bb6d38b328f002e13dc1b81926dde41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following conditions apply to both fair value hedges and cash flow hedges: 1. a The notional amount of the interest rate swap matches the principal amount of the interest-bearing asset or liability being hedged. 2. b If the hedging instrument is solely an interest rate swap, the fair value of that interest rate swap at the inception of the hedging relationship must be zero,with one exception. The fair value of the swap may be other than zero at the inception of the hedging relationship only if the swap was entered into at the relationship's inception, the transaction price of the swap was zero in the entity's principal market (or most advantageous market), and the difference between transaction price and fair value is attributable solely to differing prices within the bid-ask spread between the entry transaction and a hypothetical exit transaction. The guidance in the preceding sentence is applicable only to transactions considered _at market_ (that is, transaction price is zero exclusive of commissions and other transaction costs, as discussed in paragraph [820-10-35-9B](https://asc.understandingaccounting.org/asc/820/10/#820-10-35-9B)). If the hedging instrument is solely an interest rate swap that at the inception of the hedging relationship has a positive or negative fair value, but does not meet the one exception specified in this paragraph, the shortcut method shall not be used even if all the other conditions are met. 3. c If the hedging instrument is a compound derivative composed of an interest rate swap and mirror-image call or put option as discussed in (e), the premium for the mirror-image call or put option shall be paid or received in the same manner as the premium on the call or put option embedded in the hedged item based on the following: 1. 1 If the implicit premium for the call or put option embedded in the hedged item is being paid principally over the life of the hedged item (through an adjustment of the interest rate), the fair value of the hedging instrument at the inception of the hedging relationship shall be zero (except as discussed previously in (b) regarding differing prices due to the existence of a bid-ask spread). 2. 2 If the implicit premium for the call or put option embedded in the hedged item was principally paid at inception-acquisition (through an original issue discount or premium), the fair value of the hedging instrument at the inception of the hedging relationship shall be equal to the fair value of the mirror-image call or put option. 4. d The formula for computing net settlements under the interest rate swap is the same for each net settlement. That is, both of the following conditions are met: 1. 1 The fixed rate is the same throughout the term. 2. 2 The variable rate is based on the same index and includes the same constant adjustment or no adjustment. The existence of a [stub period](https://asc.understandingaccounting.org/glossary/s/#stub-period "Interest rate swaps with variable rates based on the London Interbank Offered Rate (LIBOR) typically reset at three-month or six-month intervals. Often, swaps may trade on interim dates that do not correspond to a swap reset date. Calendar dates that are swap reset and payment dates are set by market convention. A swap that resets quarterly may have a first payment period that is shorter than a full quarter, such as 30 days versus 90 days. Because the first payment period is not equal to a full quarter, it is referred to as a stub period. That stub period is the period that begins on the date coupon payments begin to accrue and ends on the first payment date.") and [stub rate](https://asc.understandingaccounting.org/glossary/s/#stub-rate "The stub rate is the variable rate that corresponds to the length of a stub period.") is not a violation of the criterion in (d) that would preclude application of the shortcut method if the stub rate is the variable rate that corresponds to the length of the stub period. 5. e The interest-bearing asset or liability is not prepayable, that is, able to be settled by either party before its scheduled maturity, or the assumed maturity date if the hedged item is measured in accordance with paragraph [815-25-35-13B](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13B), with the following qualifications: 1. 1 This criterion does not apply to an interest-bearing asset or liability that is prepayable solely due to an embedded call option (put option) if the hedging instrument is a compound derivative composed of an interest rate swap and a mirror-image call option (put option). 2. 2 The call option embedded in the interest rate swap is considered a mirror image of the call option embedded in the hedged item if all of the following conditions are met: 1. i The terms of the two call options match exactly, including all of the following: 1. 01 Maturities 2. 02 Strike price (that is, the actual amount for which the debt instrument could be called) and there is no termination payment equal to the deferred debt issuance costs that remain unamortized on the date the debt is called 3. 03 Related notional amounts 4. 04 Timing and frequency of payments 5. 05 Dates on which the instruments may be called. 2. ii The entity is the writer of one call option and the holder (purchaser) of the other call option. 3. iii [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 6. f [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 7. g Any other terms in the interest-bearing financial instruments or interest rate swaps meet both of the following conditions: 1. 1 The terms are typical of those instruments. 2. 2 The terms do not invalidate the assumption of perfect effectiveness. ##### [815-20-25-105](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-105) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:782b3ef3fca7f3b4c54f1e53be1ff71a97d3d9fb423d335029a54b7b9efbbb41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following incremental conditions apply to fair value hedges only: 1. a The expiration date of the interest rate swap matches the maturity date of the interest-bearing asset or liability or the assumed maturity date if the hedged item is measured in accordance with paragraph [815-25-35-13B](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13B). 2. b There is no floor or cap on the variable interest rate of the interest rate swap. 3. c The interval between repricings of the variable interest rate in the interest rate swap is frequent enough to justify an assumption that the variable payment or receipt is at a market rate (generally three to six months or less). 4. d For fair value hedges of a proportion of the principal amount of the interest-bearing asset or liability, the notional amount of the interest rate swap designated as the hedging instrument (see (a) in paragraph [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104)) matches the portion of the asset or liability being hedged. 5. e For fair value hedges of portfolios (or proportions thereof) of similar interest-bearing assets or liabilities, both of the following criteria are met: 1. 1 The notional amount of the interest rate swap designated as the hedging instrument matches the aggregate notional amount of the hedged item (whether it is all or a proportion of the total portfolio). 2. 2 The remaining criteria for the shortcut method are met with respect to the interest rate swap and the individual assets or liabilities in the portfolio. 6. f The index on which the variable leg of the interest rate swap is based matches the benchmark interest rate designated as the interest rate risk being hedged for that hedging relationship. ##### [815-20-25-106](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-106) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8a923569dcc13d3324c2a968bcf321acce2e1af1a14dd874b0254a7a75bfaca1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following incremental conditions apply to cash flow hedges only: 1. a All interest receipts or payments on the variable-rate asset or liability during the term of the interest rate swap are designated as hedged. 2. b No interest payments beyond the term of the interest rate swap are designated as hedged. 3. c Either of the following conditions is met: 1. 1 There is no floor or cap on the variable interest rate of the interest rate swap. 2. 2 The variable-rate asset or liability has a floor or cap and the interest rate swap has a floor or cap on the variable interest rate that is comparable to the floor or cap on the variable-rate asset or liability. For purposes of this paragraph, comparable does not necessarily mean equal. For example, if an interest rate swap's variable rate is based on LIBOR and an asset's variable rate is LIBOR plus 2 percent, a 10 percent cap on the interest rate swap would be comparable to a 12 percent cap on the asset. 4. d The repricing dates of the variable-rate asset or liability and the hedging instrument must occur on the same dates and be calculated the same way (that is, both shall be either prospective or retrospective). If the repricing dates of the hedged item occur on the same dates as the repricing dates of the hedging instrument but the repricing calculation for the hedged item is prospective whereas the repricing calculation for the hedging instrument is retrospective, those repricing dates do not match. 5. e For cash flow hedges of the interest payments on only a portion of the principal amount of the interest-bearing asset or liability, the notional amount of the interest rate swap designated as the hedging instrument (see paragraph [815-20-25-104(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104)) matches the principal amount of the portion of the asset or liability on which the hedged interest payments are based. 6. f For a cash flow hedge in which the hedged forecasted transaction is a group of individual transactions (as permitted by paragraph [815-20-25-15(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15)), if both of the following criteria are met: 1. 1 The notional amount of the interest rate swap designated as the hedging instrument (see paragraph [815-20-25-104(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104)) matches the notional amount of the aggregate group of hedged transactions. 2. 2 The remaining criteria for the shortcut method are met with respect to the interest rate swap and the individual transactions that make up the group. For example, the interest rate repricing dates for the variable-rate assets or liabilities whose interest payments are included in the group of forecasted transactions shall match (that is, be exactly the same as) the reset dates for the interest rate swap. 7. g The index on which the variable leg of the interest rate swap is based matches the contractually specified interest rate designated as the interest rate being hedged for that hedging relationship. ##### [815-20-25-107](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-107) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:955eb233637200c6c4839392f652f51071e1a9b9885279dccd3687f41fb3d331 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The shortcut method may be applied to a hedging relationship that involves the use of an interest rate swap-in-arrears provided all of the applicable conditions are met. ##### [815-20-25-108](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-108) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f7e9a177600c13074aa88a591d35506304b68252e2c9b577fb0a5f2a93d1eb8c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any discount or premium in the hedged debt's carrying amount (including any related deferred issuance costs) is irrelevant to and has no direct impact on the determination of whether an interest rate swap contains a mirror-image call option under paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104). Typically, the call price is greater than the par or [face amount](https://asc.understandingaccounting.org/glossary/f/#face-amount "See Notional Amount.") of the debt instrument. The carrying amount of the debt is economically unrelated to the amount the issuer would be required to pay to exercise the call embedded in the debt. ##### [815-20-25-109](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-109) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:051c46f9ade8d48ae80705b9681f0ac753728b79b3c20aa01f924370a6e23dca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fixed interest rate on a hedged item need not exactly match the fixed interest rate on an interest rate swap designated as a fair value hedge. Nor does the variable interest rate on an interest-bearing asset or liability need to be the same as the variable interest rate on an interest rate swap designated as a cash flow hedge. An interest rate swap's fair value comes from its net settlements. The fixed and variable interest rates on an interest rate swap can be changed without affecting the net settlement if both are changed by the same amount. That is, an interest rate swap with a payment based on LIBOR and a receipt based on a fixed rate of 5 percent has the same net settlements and fair value as an interest rate swap with a payment based on LIBOR plus 1 percent and a receipt based on a fixed rate of 6 percent. ##### [815-20-25-110](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-110) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e9196d0eb14a9088e8404101273cc517c2feb7fbe2a6e1018fe9080c1a932ea5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-111](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-111) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b9f5849d05f28ddbc8d2e2b78cdaff14e9cb8614a37a4ab8d1e79a86ec38c08a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Comparable credit risk at inception is not a condition for assuming perfect effectiveness even though actually achieving perfect offset would require that the same discount rate be used to determine the fair value of the swap and of the hedged item or hedged transaction. To justify using the same discount rate, the credit risk related to both parties to the swap as well as to the debtor on the hedged interest-bearing asset (in a fair value hedge) or the variable-rate asset on which the interest payments are hedged (in a cash flow hedge) would have to be the same. However, because that complication is caused by the interaction of interest rate risk and credit risk, which are not easily separable, comparable creditworthiness is not considered a necessary condition for assuming perfect effectiveness in a hedge of interest rate risk. ##### [815-20-25-112](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-112) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5b2c8aa966d32bc67bd1587ffd4bd297168ae75f27a45997977cbd7424ce99de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An interest-bearing asset or liability shall be considered prepayable under the provisions of paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) if one party to the contract has the right to cause the payment of principal before the scheduled payment dates unless either of the following conditions is met: 1. a The debtor has the right to cause settlement of the entire contract before its stated maturity at an amount that is always greater than the then fair value of the contract absent that right. 2. b The creditor has the right to cause settlement of the entire contract before its stated maturity at an amount that is always less than the then fair value of the contract absent that right. ##### [815-20-25-113](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-113) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:45f9a9c04d9118ff21320bfb73b109ead1a13035e9d73d24052159772a58e48c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, none of the following shall be considered a prepayment provision: 1. a Any term, clause, or other provision in a debt instrument that gives the debtor or creditor the right to cause prepayment of the debt contingent upon the occurrence of a specific event related to the debtor's credit deterioration or other change in the debtor's credit risk, such as any of the following: 1. 1 The debtor's failure to make timely payment, thus making it delinquent 2. 2 The debtor's failure to meet specific covenant ratios 3. 3 The debtor's disposition of specific significant assets (such as a factory) 4. 4 A declaration of cross-default 5. 5 A restructuring by the debtor. 2. b Any term, clause, or other provision in a debt instrument that gives the debtor or creditor the right to cause prepayment of the debt contingent upon the occurrence of a specific event that meets all of the following conditions: 1. 1 It is not probable at the time of debt issuance. 2. 2 It is unrelated to changes in benchmark interest rates, contractually specified interest rates, or any other market variable. 3. 3 It is related either to the debtor's or creditor's death or to regulatory actions, legislative actions, or other similar events that are beyond the control of the debtor or creditor. 3. c Contingent acceleration clauses that permit the debtor to accelerate the maturity of an outstanding note only upon the occurrence of a specified event that meets all of the following conditions: 1. 1 It is not probable at the time of debt issuance. 2. 2 It is unrelated to changes in benchmark interest rates, contractually specified interest rates, or any other market variable. 3. 3 It is related to regulatory actions, legislative actions, or other similar events that are beyond the control of the debtor or creditor. ##### [815-20-25-114](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-114) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c7f34fc5a3e26fdc4771d8f1e443fd452352b23fdeefb8d1fa68a5aaf6a35f06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Furthermore, a right to cause a contract to be prepaid at its then fair value would not cause the interest-bearing asset or liability to be considered prepayable because that right would have a fair value of zero at all times and essentially would provide only liquidity to the holder. ##### [815-20-25-115](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-115) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fc7c0c16d04bc33f7a4cea734349506beada466bb9e8565dbe4b93a519a3e088 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Application of this guidance to specific debt instruments is illustrated in paragraph [815-20-55-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-75). ##### [815-20-25-116](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-116) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b4b6551e5aa983abd891659afebbe7db2e8d0730edd4c051f79d8c5f138bdd3f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Portfolio hedging cannot be used to circumvent the application of the shortcut method criteria beginning in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) to a fair value hedge of an individual interest-bearing asset or liability. A portfolio of interest-bearing assets or interest-bearing liabilities cannot qualify for the shortcut method if it contains an interest-bearing asset or liability that individually cannot qualify for the shortcut method. ##### [815-20-25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:355ddaefaf12791e817818d7f80e00d21623d0dfe1b1588499754991467676be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fair value hedge requirements of paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) ensure that the individual items in a portfolio share the same risk exposure and have fair value changes attributable to the hedged risk that are expected to respond in a generally proportionate manner to the overall fair value changes of the entire portfolio. That requirement restricts the types of portfolios that can qualify for portfolio hedging; however, it also permits the existence of a mismatch between the change in the fair value of the individual hedged items and the change in the fair value of the hedged portfolio attributable to the hedged risk in portfolios that do qualify. As a result, the assumption of perfect effectiveness required for the shortcut method generally is inappropriate for portfolio hedges of similar assets or liabilities that are not also nearly identical (except for their notional amounts). Application of the shortcut method to portfolios that meet the requirements of paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) is appropriate only if the assets or liabilities in the portfolio meet the same stringent criteria in paragraphs [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), [815-20-25-104(g)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), and [815-20-25-105(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-105) as required for hedges of individual assets and liabilities. ##### [815-20-25-117A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ae7adc81a991ed2de383359a642927928e7b050ba479a379a96b83723e9453ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the period in which an entity determines that use of the shortcut method was not or no longer is appropriate, the entity may use a quantitative method to assess hedge effectiveness and measure hedge results without dedesignating the hedging relationship if both of the following criteria are met: 1. a The entity documented at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(04)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) which quantitative method it would use to assess hedge effectiveness and measure hedge results if the shortcut method was not or no longer is appropriate during the life of the hedging relationship. 2. b The hedging relationship was highly effective on a prospective and retrospective basis in achieving offsetting changes in fair value or cash flows attributable to the hedged risk for the periods in which the shortcut method criteria were not met. ##### [815-20-25-117B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:398e5fd1e5540d11bebd827876a247f4f727a416be03d567dabfcac669cf618e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the criterion in paragraph [815-20-25-117A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) is not met, the hedging relationship shall be considered invalid in the period in which the criteria for the shortcut method were not met and in all subsequent periods. If the criterion in paragraph [815-20-25-117A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) is met, the hedging relationship shall be considered invalid in all periods in which the criterion in paragraph [815-20-25-117A(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) is not met. ##### [815-20-25-117C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b7aea35b3e107b2cb5e12245e9f5e6d3e5b2f47e42e8b54ea6602479e641fc4d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity cannot identify the date on which the shortcut criteria ceased to be met, the entity shall perform the quantitative assessment of effectiveness documented at hedge inception for all periods since hedge inception. ##### [815-20-25-117D](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:d74e5521b471af9d1ec8ceb8622675d2eb9bce4a9e6d1f8b18c4e03b23b4ff24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The terms of the hedged item and hedging instrument used to assess effectiveness, in accordance with paragraph [815-20-25-117A(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A), shall be those existing as of the date that the shortcut criteria ceased to be met. For cash flow hedges, if the hypothetical derivative method is used as a proxy for the hedged item, the value of the hypothetical derivative shall be set to zero as of hedge inception. ##### [815-20-25-118](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-118) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c5ccda7c0dc40f4ca97649e9cb2d42a91e6733517241d0028e55fd0d07454e6c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In documenting its risk management strategy for a fair value hedge, an entity may specify an intent to consider the possible changes (that is, not limited to the likely or expected changes) in value of the hedging derivative instrument and the hedged item only over a shorter period than the derivative instrument's remaining life in formulating its expectation that the hedging relationship will be highly effective in achieving offsetting changes in fair value for the risk being hedged. The entity does not need to contemplate the offsetting effect for the entire term of the hedging instrument. ##### [815-20-25-118A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-118A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5d8b8230b9f0580f692962195c506fc26788efa58157d59f62d248fccfa44d88 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a fair value hedge of interest rate risk designated under the portfolio layer method in accordance with paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A), an entity may exclude prepayment risk (if applicable) when measuring the change in fair value of the hedged item attributable to interest rate risk. ##### [815-20-25-119](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-119) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:51e948897d5daa836714742b1e52f2108dbab290bc66cfb91e7bb773a3be9947 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedge effectiveness criteria applicable to cash flow hedges only are organized as follows: 1. a Consideration of the time value of money 2. b Consideration of counterparty credit risk 3. c Additional considerations for options in cash flow hedges 4. d Assuming perfect hedge effectiveness in a cash flow hedge of a variable-rate borrowing with a receive-variable, pay-fixed interest rate swap recorded under the simplified hedge accounting approach. ##### [815-20-25-120](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-120) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:342c8d0e0b3bbfc0ca5f1346eec3f5c24aaa02ff33fd0d3ae3bd3f077c778b05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In assessing the effectiveness of a cash flow hedge, an entity generally shall consider the time value of money, especially if the hedging instrument involves periodic cash settlements. ##### [815-20-25-121](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-121) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:25c5c77bea9ced9ae7cf2195e8138506b475df572d95f85ea3b54aa012a45ea9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An example of a situation in which an entity likely would reflect the time value of money is a tailing strategy with futures contracts. When using a tailing strategy, an entity adjusts the size or contract amount of futures contracts used in a hedge so that earnings (or expense) from reinvestment (or funding) of daily settlement gains (or losses) on the futures do not distort the results of the hedge. To assess offset of expected cash flows when a tailing strategy has been used, an entity could reflect the time value of money, perhaps by comparing the present value of the hedged forecasted cash flow with the results of the hedging instrument. ##### [815-20-25-122](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-122) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:908f6294fe9babb161ce6cc3729e6b2a667d6024d25f16d988a76571cc46441b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a cash flow hedge, an entity shall consider the likelihood of the counterparty's compliance with the contractual terms of the hedging derivative instrument that require the counterparty to make payments to the entity. Paragraph [815-20-35-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-14) states that, for an entity to conclude on an ongoing basis that a cash flow hedging relationship is expected to be highly effective in achieving offsetting changes in cash flows, the entity shall not ignore whether it will collect the payments it would be owed under the contractual provisions of the derivative instrument. See paragraphs [815-20-35-14 through 35-18](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-14) for further guidance. ##### [815-20-25-123](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-123) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cd4834fd5b52d7af0111f85635b4186a9f1eec079045eb2a5c15e0a2d4ef0395 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When an entity has documented that the effectiveness of a cash flow hedge will be assessed based on changes in the hedging option's intrinsic value pursuant to paragraph [815-20-25-82(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82), that assessment (and the related cash flow hedge accounting) shall be performed for all changes in intrinsic value—that is, for all periods of time when the option has an intrinsic value, such as when the underlying is above the strike price of the call option. ##### [815-20-25-124](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-124) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4d55c0107bc76e6611e4316894030611794b6b32af3bf96dd103eb484d13d48e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When a purchased option is designated as a hedging instrument in a cash flow hedge, an entity shall not define only limited parameters for the risk exposure designated as being hedged that would include the time value component of that option. An entity cannot arbitrarily exclude some portion of an option's intrinsic value from the hedge effectiveness assessment simply through an articulation of the risk exposure definition. It is inappropriate to assert that only limited risk exposures are being hedged (for example, exposures related only to currency-exchange-rate changes above $1.65 per pound sterling as illustrated in Example 26 \[see paragraph [815-20-55-205](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-205)\]). ##### [815-20-25-125](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-125) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:945872f9ecb7289246b83648319679bd042fc2545f2cd3dd0b395883ce4892ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an option is designated as the hedging instrument in a cash flow hedge, an entity may assess hedge effectiveness based on a measure of the difference, as of the end of the period used for assessing hedge effectiveness, between the strike price and forward price of the underlying, undiscounted. Although assessment of cash flow hedge effectiveness with respect to an option designated as the hedging instrument in a cash flow hedge shall be performed by comparing the changes in present value of the expected future cash flows of the forecasted transaction to the change in fair value of the derivative instrument (aside from any excluded component under paragraph [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82)), that measure of changes in the expected future cash flows of the forecasted transaction based on forward rates, undiscounted, is not prohibited. With respect to an option designated as the hedging instrument in a cash flow hedge, assessing hedge effectiveness based on a similar measure with respect to the hedging instrument eliminates any difference that the effect of discounting may have on the hedging instrument and the hedged transaction. Pursuant to paragraph [815-20-25-3(b)(2)(iv)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), entities shall document the measure of intrinsic value that will be used in the assessment of hedge effectiveness. As discussed in paragraph [815-20-25-80](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-80), that measure must be used consistently for each period following designation of the hedging relationship. ##### [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:abded50265021ebab2085b6a1711f718333b929002f334d30a2c6170808b234b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in paragraph [815-20-25-129](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) addresses a cash flow hedge that meets all of the following conditions: 1. a The hedging instrument is a purchased option or a combination of only options that comprise either a net purchased option or a zero-cost collar. 2. b The exposure being hedged is the variability in expected future cash flows attributed to a particular rate or price beyond (or within) a specified level (or levels). 3. c The assessment of effectiveness is documented as being based on total changes in the option's cash flows (that is, the assessment will include the hedging instrument's entire change in fair value, not just changes in intrinsic value). ##### [815-20-25-127](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-127) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9f7fc7b1d4f4ff00abf1ca9caf793d74f6105d9d0a96fce1fa77bf75a0d5c223 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance has no effect on the accounting for fair value hedging relationships. In addition, in determining the accounting for seemingly similar cash flow hedging relationships, it would be inappropriate to analogize to this guidance. ##### [815-20-25-128](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-128) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e34f8cb21c75451c587556645bdaecc175d9c1b8bb2193893698290cf886c5f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a hedging relationship that meets all of the conditions in paragraph [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126), an entity may focus on the hedging instrument's terminal value (that is, its expected future pay-off amount at its maturity date) in determining whether the hedging relationship is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. An entity's focus on the hedging instrument's terminal value is not an impediment to the entity's subsequently deciding to dedesignate that cash flow hedge before the occurrence of the hedged transaction. If the hedging instrument is a purchased cap consisting of a series of purchased caplets that are each hedging an individual hedged transaction in a series of hedged transactions (such as caplets hedging a series of hedged interest payments at different monthly or quarterly dates), the entity may focus on the terminal value of each caplet (that is, the expected future pay-off amount at the maturity date of each caplet) in determining whether each of those hedging relationships is expected to be highly effective in achieving offsetting cash flows. The guidance in this paragraph applies to a purchased option regardless of whether at the inception of the cash flow hedging relationship it is at the money, in the money, or out of the money. ##### [815-20-25-129](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ec0d83a54fbe71048dfeb6d4d67c6f6a1ab14d54a33866e61f6882b44e2b519e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A hedging relationship that meets all of the conditions in paragraph [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126) may be considered to be perfectly effective if all of the following conditions are met: 1. a The critical terms of the hedging instrument (such as its notional amount, underlying, maturity date, and so forth) completely match the related terms of the hedged forecasted transaction (such as the notional amount, the variable that determines the variability in cash flows, the expected date of the hedged transaction, and so forth). 2. b The strike price (or prices) of the hedging option (or combination of options) matches the specified level (or levels) beyond (or within) which the entity's exposure is being hedged. 3. c The hedging instrument's inflows (outflows) at its maturity date completely offset the change in the hedged transaction's cash flows for the risk being hedged. 4. d The hedging instrument can be exercised only on a single date—its contractual maturity date. The condition in (d) is consistent with the entity's focus on the hedging instrument's terminal value. If the holder of the option chooses to pay for the ability to exercise the option at dates before the maturity date (for example, by acquiring an American-style option), the hedging relationship would not be perfectly effective. ##### [815-20-25-129A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cf7949bf9924f9103452ac4f82cffeaf614b93d0593f68aa1998ff575b61a840 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a hedge of a group of forecasted transactions in accordance with paragraph [815-20-25-15(a)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), an entity may assume that the timing in which the hedged transactions are expected to occur and the maturity date of the hedging instrument match in accordance with paragraph [815-20-25-129(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) if those forecasted transactions occur and the derivative matures within the same 31-day period or fiscal month. ##### [815-20-25-130](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-130) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:47475f8f02c68f80b56f01f59ccf8fdaea3bc7cd4488e07c2f98e45668ab5b4b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the following paragraph addresses a cash flow hedging relationship that meets both of the following conditions: 1. a A combination of options (deemed to be a net purchased option) is designated as the hedging instrument. 2. b The effectiveness of the hedge is assessed based only on changes in intrinsic value of the hedging instrument (the combination of options). ##### [815-20-25-131](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:502cd12340ed09c9e3d96734132921e7ea3532490f3fadb61f2442b73e1e98b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The assessment of effectiveness of a cash flow hedging relationship meeting the conditions in the preceding paragraph may be based only on changes in the underlying that cause a change in the intrinsic value of the hedging instrument (the combination of options). Thus, the assessment can exclude ranges of changes in the underlying for which there is no change in the hedging instrument's intrinsic value. ##### [815-20-25-131A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cce07fad35023e360a405d62dbdf50de81edb5ac053a11a4044e5545a447abe6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-03](https://asc.understandingaccounting.org/updates/asu-2016-03/). ##### [815-20-25-131AA](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131AA) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e11bf93deb36afdb4a56a4edc212c204a969e5e21aecf078dad27bb2ff88ff11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131AB](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131AB) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:95db349bdf7bac54d0240b9fbcdd63dc70524037bb8a05431c84f97a59463162 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:25e939ad407a6a7f11ebb25b29da93e9b54a60cb90a2d6082dd77acfd8c3849a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:42f470415119ceaa3ce3a6db0512043b390e59afc1bd34939bce3b18acb665c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131D](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:44a453bdac780336c09d4877d6d8e8b7164971682c809c6345707b1f72374de1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131E](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131E) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8627830df3b5b0027161043d5a636230913eec31696d2ead660394ea901452a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-132](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-132) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ed60f8d7967a7036eea2ac7ca8301c908503e74b9d4c5adfb986506a789d225b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). #### Hedge Accounting Provisions Applicable to Certain Private Companies ##### [815-20-25-133](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:097123f1af90bd31d62a5674e59db3ffc75c7d24ba281574ba71061335b68dd3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [815-10-35-1A through 35-1C](https://asc.understandingaccounting.org/asc/815/10/#815-10-35-1A) , [815-10-50-3](https://asc.understandingaccounting.org/asc/815/10/#815-10-50-3), [815-20-25-3A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3A), [815-20-25-119](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-119), [815-20-25-134 through 25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-134) , [815-20-55-79A through 55-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79A) , [825-10-50-3](https://asc.understandingaccounting.org/asc/825/10/#825-10-50-3), and [825-10-50-8](https://asc.understandingaccounting.org/asc/825/10/#825-10-50-8) provide guidance for an entity electing the simplified hedge accounting approach. See paragraph [815-10-65-6](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-6) for transition guidance on applying the simplified hedge accounting approach. ##### [815-20-25-134](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-134) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c4c0f8a80f726675ccbd414c0bf4bb0b4a5d541d4d6798d18aa03b62f9b30bfc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The conditions for the simplified hedge accounting approach determine which cash flow hedging relationships qualify for a simplified version of hedge accounting. If all of the conditions in paragraphs [815-20-25-135](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-135) and [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) are met, an entity may assume perfect effectiveness in a cash flow hedging relationship involving a variable-rate borrowing and a receive-variable, pay-fixed interest rate swap. ##### [815-20-25-135](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-135) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:33d0f0a22d08816230709c02ccf6333e47f142ee81c920fe548f94273c7836e1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Provided all of the conditions in paragraph [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) are met, the simplified hedge accounting approach may be applied by a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") except for a financial institution as described in paragraph [942-320-50-1](https://asc.understandingaccounting.org/asc/320/942/#320-942-50-1). An entity may elect the simplified hedge accounting approach for any receive-variable, pay-fixed interest rate swap, provided that all of the conditions for applying the simplified hedge accounting approach specified in paragraph [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) are met. Implementation guidance on the conditions set forth in paragraph [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) is provided in paragraphs [815-20-55-79A through 55-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79A) . ##### [815-20-25-136](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-136) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c23530a712f5cde86bbb25d1f4f86b25eaddbfce900931a0ae1c323dab77255e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In applying the simplified hedge accounting approach, the documentation required by paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) to qualify for hedge accounting must be completed by the date on which the first annual [financial statements are available to be issued](https://asc.understandingaccounting.org/glossary/f/#financial-statements-are-available-to-be-issued "Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders. The process involved in creating and distributing the financial statements will vary depending on an entity's management and corporate governance structure as well as statutory and regulatory requirements.") after hedge inception rather than concurrently at hedge inception. ##### [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1c7d660b76a6f9752e4641ace5661d04a5cf0919764153af7ead816a8c3beb46 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An eligible entity under paragraph [815-20-25-135](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-135) must meet all of the following conditions to apply the simplified hedge accounting approach to a cash flow hedge of a variable-rate borrowing with a receive-variable, pay-fixed interest rate swap: 1. a Both the variable rate on the swap and the borrowing are based on the same index and reset period (for example, both the swap and borrowing are based on one-month London Interbank Offered Rate \[LIBOR\] or both the swap and borrowing are based on three-month LIBOR). 2. b The terms of the swap are typical (in other words, the swap is what is generally considered to be a “plain-vanilla” swap), and there is no floor or cap on the variable interest rate of the swap unless the borrowing has a comparable floor or cap. 3. c The repricing and settlement dates for the swap and the borrowing match or differ by no more than a few days. 4. d The swap's fair value at inception (that is, at the time the derivative was executed to hedge the interest rate risk of the borrowing) is at or near zero. 5. e The notional amount of the swap matches the principal amount of the borrowing being hedged. In complying with this condition, the amount of the borrowing being hedged may be less than the total principal amount of the borrowing. 6. f All interest payments occurring on the borrowing during the term of the swap (or the effective term of the swap underlying the forward starting swap) are designated as hedged whether in total or in proportion to the principal amount of the borrowing being hedged. ##### [815-20-25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-138) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:151da9d5b88542da2c7e6d697bade6f2f0f1fed5dbd4592d6fd29513cd9fd77d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A cash flow hedge established through the use of a forward starting receive-variable, pay-fixed interest rate swap may be permitted in applying the simplified hedge accounting approach only if the occurrence of forecasted interest payments to be swapped is probable. When forecasted interest payments are no longer probable of occurring, a cash flow hedging relationship will no longer qualify for the simplified hedge accounting approach and the General Subsections of this Topic shall apply at the date of change and on a prospective basis. ##### [815-20-25-139](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:95663e67155b28e530ce4bc264b73177fb3c97ae764a2853e97549cf289789a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Concurrent with hedge inception, a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") that is not a financial institution as described in paragraph [942-320-50-1](https://asc.understandingaccounting.org/asc/320/942/#320-942-50-1) shall document the following: 1. a The hedging relationship in accordance with paragraph [815-20-25-3(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) 2. b The hedging instrument in accordance with paragraph [815-20-25-3(b)(2)(i)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) 3. c The hedged item in accordance with paragraph [815-20-25-3(b)(2)(ii)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), including (if applicable) firm commitments or the analysis supporting a portfolio layer method designation in paragraph [815-20-25-3(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), or forecasted transactions in paragraph [815-20-25-3(d)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) 4. d The nature of the risk being hedged in accordance with paragraph [815-20-25-3(b)(2)(iii)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). ##### [815-20-25-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-140) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:54c3878a8a7a01580c274da9de93acac437621cc105a679bd1d572a817138b8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A private company that is not a financial institution is not required to perform or document the following items concurrent with hedge inception but rather is required to perform or document them within the time periods discussed in paragraph [815-20-25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-142): 1. a The method of assessing hedge effectiveness at inception and on an ongoing basis in accordance with paragraph [815-20-25-3(b)(2)(iv) and (vi)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) 2. b Initial hedge effectiveness assessments in accordance with paragraph [815-20-25-3(b)(2)(iv)(01) through (04)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). ##### [815-20-25-141](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-141) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:85012d38a997e236bb628b342dc1981f55fed083b812022ffc4adbfefaaed2b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1A beginning in paragraph [815-20-55-80A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-80A) illustrates hedge documentation when the critical terms of the hedging instrument and hedged forecasted transaction match. Although that Example illustrates the documentation of the method of assessing hedge effectiveness, private companies that are not financial institutions may complete hedge documentation requirements in accordance with paragraphs [815-20-25-139 through 25-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) . ##### [815-20-25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-142) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ee304694ad4eb78fa0091b4657bdd2cf77720ddbbe08117983263987527a9aba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a private company that is not a financial institution, the performance and documentation of the items listed in paragraph [815-20-25-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-140), as well as required subsequent quarterly hedge effectiveness assessments, may be completed before the date on which the next interim (if applicable) or annual financial statements are available to be issued. Even though the completion of the initial and ongoing assessments of effectiveness may be deferred to the date on which [financial statements are available to be issued](https://asc.understandingaccounting.org/glossary/f/#financial-statements-are-available-to-be-issued "Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders. The process involved in creating and distributing the financial statements will vary depending on an entity's management and corporate governance structure as well as statutory and regulatory requirements.") the assessments shall be completed using information applicable as of hedge inception and each subsequent quarterly assessment date when completing this documentation on a deferred basis. Therefore, the assessment should be performed to determine whether the hedge was highly effective at achieving offsetting changes in fair values or cash flows at inception and in each subsequent quarterly assessment period up to the reporting date. #### Hedge Accounting Provisions Applicable to Certain Not-for-Profit Entities ##### [815-20-25-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-143) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2eb1ae94ace243e00b1d9806734290788f3dedf393be1e83a815f1dd36754af5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market) may apply the guidance on the timing of hedge documentation and hedge effectiveness assessments in paragraphs [815-20-25-139 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) . Specifically, those entities shall document the items listed in paragraph [815-20-25-139](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) concurrent with hedge inception, but they may perform and document the items listed in paragraph [815-20-25-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-140)and perform the required subsequent quarterly hedge effectiveness assessments in accordance with paragraph [815-20-25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-142)within the time periods discussed in paragraph [815-20-25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-142).