# ASC 815-20-35: Derivatives and Hedging — Hedging—General — 35 Subsequent Measurement Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/20/#35-subsequent-measurement) 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): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:497d74ad802283c76df2b9357b67c12d15ab600c14f89b58e8eda0d273c13ac1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/815/20/#35-subsequent-measurement) SEC content: no ##### [815-20-35-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:4d069d7f2fb93b72ff0e62a138f1eb0ce8bc70e1666db4de9433619b86e133cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-10-35-2](https://asc.understandingaccounting.org/asc/815/10/#815-10-35-2) states that the accounting for subsequent changes in the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") (that is, gains or losses) 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.") depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. Specifically, subsequent gains and losses on derivative instruments shall be accounted for as follows: 1. a No hedging designation. Paragraph [815-10-35-2](https://asc.understandingaccounting.org/asc/815/10/#815-10-35-2) requires that the gain or loss on a derivative instrument not designated as a hedging instrument be recognized currently in earnings. 2. b [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."). The gain or loss on a derivative instrument designated and qualifying as a fair value hedging instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk shall be recognized currently in earnings in the same accounting period, as provided in paragraphs  [815-25-35-1 through 35-6](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-1) . If an entity excludes a portion of the hedging instrument from the assessment of hedge effectiveness in accordance with paragraph [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82), the initial value of the excluded component shall be recognized in earnings using a systematic and rational method over the life of the hedging instrument with any difference between the change in fair value of the excluded component and amounts recognized in earnings under that systematic and rational method recognized in other comprehensive income in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). An entity also may elect to recognize the excluded component of the gain or loss currently in earnings in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). The gain or loss on the hedging derivative or nonderivative instrument in a hedge of a foreign-currency-denominated [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.") and the offsetting loss or gain on the hedged firm commitment shall be recognized currently in earnings in the same accounting period. The gain or loss on the hedging derivative instrument in a hedge of an available-for-sale debt security and the offsetting loss or gain on the hedged available-for-sale debt security shall be recognized currently in earnings in the same accounting period. 3. c [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."). The gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument shall be reported as a component of other comprehensive income (outside earnings) and reclassified into earnings in the same period or periods during which the hedged [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.") affects earnings, as provided in paragraphs [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) and [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . If an entity excludes a portion of the hedging instrument from the assessment of hedge effectiveness in accordance with paragraph [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82), the initial value of the excluded component shall be recognized in earnings using a systematic and rational method over the life of the hedging instrument with any difference between the change in fair value of the excluded component and amounts recognized in earnings under that systematic and rational method recognized in other comprehensive income in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). An entity also may elect to recognize the excluded component of the gain or loss currently in earnings in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). The gain or loss on the hedging derivative instrument in a hedge of a forecasted foreign-currency-denominated [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.") shall be reported as a component of other comprehensive income (outside earnings) and reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings, as provided in paragraph [815-20-25-65](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-65). 4. d Net investment hedge. The gain or loss on the hedging derivative or nonderivative hedging instrument in a hedge of a net investment in a foreign operation shall be reported in other comprehensive income (outside earnings) as part of the cumulative translation adjustment, as provided in paragraph [815-20-25-66](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-66). If an entity excludes a portion of the hedging instrument from the assessment of hedge effectiveness in accordance with paragraphs [815-35-35-5 through 35-5B](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5), the initial value of the excluded component 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 the amounts recognized in earnings under that systematic and rational method shall be recognized in the same manner as a translation adjustment (that is, reported in the cumulative translation adjustment section of other comprehensive income) in accordance with paragraph [815-35-35-5A](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5A). An entity also may elect to recognize the excluded component of the gain or loss currently in earnings in accordance with paragraph [815-35-35-5B](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5B). #### Hedge Effectiveness—After Designation ##### [815-20-35-2](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:5d30d4ccc832da0e2b3fe8dbd44c47396af5529d8f39647678f6e2fb73797ff2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a fair value hedge or cash flow hedge initially qualifies for hedge accounting, the entity would continue to assess whether the hedge meets the effectiveness test on either a quantitative basis (using either a dollar-offset test or a statistical method such as regression analysis) or a 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 effectiveness. If the hedge fails the effectiveness test at any time (that is, if the entity does not expect the hedge to be highly effective at achieving offsetting changes in fair values or cash flows), the hedge ceases to qualify for hedge accounting. At least quarterly, the hedging entity shall determine whether the hedging relationship has been highly effective in having achieved offsetting changes in fair value or cash flows through the date of the periodic assessment. ##### [815-20-35-2A](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:c692b50aaa13b7ddf86874764091d17c69100643617f3e49db82918b184d733b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may qualitatively assess hedge effectiveness if both of the following criteria are met: 1. a An entity performs an initial quantitative test of hedge effectiveness on a prospective basis (that is, it is not assuming that the hedging relationship is perfectly effective at hedge inception as described in paragraph [815-20-25-3(b)(2)(iv)(01)(A) through (H)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3)), and the results of that quantitative test demonstrate highly effective offset. 2. b At hedge inception, an entity can reasonably support an expectation of high effectiveness on a qualitative basis in subsequent periods. See paragraphs [815-20-55-79G through 55-79N](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79G) for implementation guidance on factors to consider when determining whether qualitative assessments of effectiveness can be performed after hedge inception. ##### [815-20-35-2B](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:9e398887c79c63f52f53cd7258a4833e8dd3e6ed240f482a38525b2f32cb6d05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may elect to qualitatively assess hedge effectiveness in accordance with paragraph [815-20-35-2A](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) on a hedge-by-hedge basis. If an entity makes this qualitative assessment election, only the quantitative method specified in an entity's initial hedge documentation must comply with paragraph [815-20-25-81](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81). ##### [815-20-35-2C](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:8314560355cc995eb5088daae91166ca2d2e985d02531f7a19314ac49ec040a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When an entity performs qualitative assessments of hedge effectiveness, it shall verify and document whenever financial statements or earnings are reported and at least every three months that the facts and circumstances related to the hedging relationship have not changed such that it can assert qualitatively that the hedging relationship was and continues to be highly effective. While not all-inclusive, the following is a list of indicators that may, individually or in the aggregate, allow an entity to continue to assert qualitatively that the hedging relationship is highly effective: 1. a An assessment of the factors that enabled the entity to reasonably support an expectation of high effectiveness on a qualitative basis has not changed such that the entity can continue to assert qualitatively that the hedging relationship was and continues to be highly effective. This shall include an assessment of the guidance in paragraph [815-20-25-100](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-100) when applicable. 2. b There have been no adverse developments regarding the risk of counterparty default. ##### [815-20-35-2D](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:a5bbfc3cacb9d3975d2d4ae97f4a8887e1298046205d44d4a7e3aa8f5e762d6b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity elects to assess hedge effectiveness on a qualitative basis and then facts and circumstances change such that the entity no longer can assert qualitatively that the hedging relationship was and continues to be highly effective in achieving offsetting changes in fair values or cash flows, the entity shall assess effectiveness of that hedging relationship on a quantitative basis in subsequent periods. In addition, an entity may perform a quantitative assessment of hedge effectiveness in any reporting period to validate whether qualitative assessments of hedge effectiveness remain appropriate. In both cases, the entity shall apply the quantitative method that it identified in its initial hedge documentation in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). ##### [815-20-35-2E](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2E) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:cbeb38432bb02cfbd0f166a6c49163bcb164770c439ce79ac3169949b8aaf5fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When an entity determines that facts and circumstances have changed and it no longer can assert qualitatively that the hedging relationship was and continues to be highly effective, the entity shall begin performing subsequent quantitative assessments of hedge effectiveness as of the period that the facts and circumstances changed. If there is no identifiable event that led to the change in the facts and circumstances of the hedging relationship, the entity may begin performing quantitative assessments of effectiveness in the current period. ##### [815-20-35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2F) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:d5bf6066042e58f83e90ed6837e18267733bbdf055764fa34f2c528aff09a5b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After performing a quantitative assessment of hedge effectiveness for one or more reporting periods as discussed in paragraphs [815-20-35-2D through 35-2E](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D) , an entity may revert to qualitative assessments of hedge effectiveness if it can reasonably support an expectation of high effectiveness on a qualitative basis for subsequent periods. See paragraphs [815-20-55-79G through 55-79N](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79G) for implementation guidance on factors to consider when determining whether qualitative assessments of effectiveness can be performed after hedge inception. ##### [815-20-35-2G](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2G) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:59a75f194d6de97c6626e9a74ca4b8fd504c9b086c3d8bf8bb243878b2425764 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Quantitative assessments 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. ##### [815-20-35-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:f4de0dc2c0243130d7f4187f18566c853c0a84183c8c129672cb275fe288877c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity elects at the inception of a hedging relationship to use the same regression analysis approach for both prospective considerations and retrospective evaluations of assessing effectiveness, then during the term of that hedging relationship both of the following conditions shall be met: 1. a Those regression analysis calculations shall generally incorporate the same number of data points. 2. b That entity must periodically update its regression analysis (or other statistical analysis). ##### [815-20-35-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:db1c2acbe3f9d066d5d704ea14a94f15c5437ba0d7985d2a1db89c297ef3ea5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Electing to use a regression or other statistical analysis approach instead of a dollar-offset approach to perform retrospective evaluations of assessing hedge effectiveness may affect whether an entity can apply hedge accounting for the current assessment period. ##### [815-20-35-5](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:f97b920ed015761f330d45556b94a5c0578b6d305724cefd8d7413fa36446742 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In periodically (that is, at least quarterly) assessing retrospectively the effectiveness of a fair value hedge (or a cash flow hedge) in having achieved offsetting changes in fair values (or cash flows) under a dollar-offset approach, an entity shall use either a period-by-period approach or a cumulative approach on individual fair value hedges (or cash flow hedges): 1. a Period-by-period approach. The period-by-period approach involves comparing the changes in the hedging instrument's fair values (or cash flows) that have occurred during the period being assessed to the changes in the hedged item's fair value (or hedged transaction's cash flows) attributable to the risk hedged that have occurred during the same period. If an entity elects to base its comparison of changes in fair value (or cash flows) on a period-by-period approach, the period cannot exceed three months. Fair value (or cash flow) patterns of the hedging instrument or the hedged item (or hedged transaction) in periods before the period being assessed are not relevant. 2. b Cumulative approach. The cumulative approach involves comparing the cumulative changes (to date from inception of the hedge) in the hedging instrument's fair values (or cash flows) to the cumulative changes in the hedged item's fair value (or hedged transaction's cash flows) attributable to the risk hedged. ##### [815-20-35-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:248038f52d38b8cbff407235778f620d7b997fe54abeb02a3c4562f6ca010907 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity elects at inception of a hedging relationship to base its comparison of changes in fair value (or cash flows) on a cumulative approach, then that entity must abide by the results of that methodology as long as that hedging relationship remains designated. Electing to utilize a period-by-period approach instead of a cumulative approach (or vice versa) to perform retrospective evaluations of assessing hedge effectiveness under the dollar-offset method may affect whether an entity can apply hedge accounting for the current assessment period. ##### [815-20-35-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:66d1e836d87069b638439600caf7ea8cf8e1cad1de7c2912dbdce7c98a3272b7 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/). ##### [815-20-35-8](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:b6c72957784647a903b7fbdd8cb9999d2d21be98f0d2204491d9fd52b9f88180 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The remainder of this guidance is organized as follows: 1. a Assessing effectiveness based on whether the critical terms of the hedging instrument and hedged item match 2. b Possibility of default by the counterparty to hedging derivative 3. c Change in hedge effectiveness method when hedge effectiveness is assessed on a quantitative basis. ##### [815-20-35-9](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:7c7d77f3ad1000b85c2c00c15aa06d640b1896542bec8ee33ea533e6bb809caf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If, at inception, the critical terms of the hedging instrument and the hedged forecasted transaction are the same (see paragraphs [815-20-25-84 through 25-84A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84)), the entity can conclude that changes in cash flows attributable to the risk being hedged are expected to be completely offset by the hedging derivative. Therefore, subsequent assessments can be performed by verifying and documenting whether the critical terms of the hedging instrument and the forecasted transaction have changed during the period in review. ##### [815-20-35-10](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:781f524f15725158c4eb377ef894df1397f5b1f7b5260ab44fa685f092e39294 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the assessment of hedge effectiveness in a cash flow hedge involves assessing the likelihood of the counterparty's compliance with the contractual terms of the derivative instrument designated as the hedging instrument, the entity must also assess whether there have been adverse developments regarding the risk of counterparty default, particularly if the entity planned to obtain its cash flows by liquidating the derivative instrument at its fair value. ##### [815-20-35-11](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:9fcb28d35efb9e4db70599f26c1b889e09168e0f628324174d65f5a77674faa1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there are no such changes in the critical terms or adverse developments regarding counterparty default, the entity may conclude that the hedging relationship is perfectly effective. In that case, the change in fair value of the derivative instrument can be viewed as a proxy for the present value of the change in cash flows attributable to the risk being hedged. ##### [815-20-35-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:12160e25518c2a348f415b234e800c7f056caf8ebf683e7512aa44322afd992e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, the entity must assess whether the hedging relationship is expected to continue to be highly effective using a quantitative assessment method (either a dollar-offset test or a statistical method such as regression analysis) if any of the following conditions exist: 1. a The critical terms of the hedging instrument or the hedged forecasted transaction have changed. 2. b There have been adverse developments regarding the risk of counterparty default. ##### [815-20-35-13](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:a099fd0774cc99be053ff4a6f1e1749f06987ad741fa5dd314c0bc5f41642ccc 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/). ##### [815-20-35-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:ddf22f08a193b7553331568c1db5c2187f45b47e9d3a453fc9391801182a3912 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For an entity to conclude on an ongoing basis that the 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. In complying with the requirements of paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75), the entity shall assess the possibility of whether the counterparty to the derivative instrument will default by failing to make any contractually required payments to the entity as scheduled in the derivative instrument. In making that assessment, the entity shall also consider the effect of any related collateralization or financial guarantees. The entity shall be aware of the counterparty's creditworthiness (and changes therein) in determining the fair value of the [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."). Although a change in the counterparty's creditworthiness would not necessarily indicate that the counterparty would default on its obligations, such a change shall warrant further evaluation. ##### [815-20-35-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:f56687cadc556f797226d322a9d586310b7b33bf43c11078d66b0839bee1b91b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the likelihood that the counterparty will not default ceases to be probable, an entity would be unable to conclude that the hedging relationship in a cash flow hedge is expected to be highly effective in achieving offsetting cash flows. ##### [815-20-35-16](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:3b4837a9d22943c0b64f7d7a835489f7219b14656ba1ff9ab5e79488c58d1f9b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast, a change in the creditworthiness of the derivative instrument's counterparty in a fair value hedge would have an immediate effect because that change in creditworthiness would affect the change in the derivative instrument's fair value, which would immediately affect both of the following: 1. a The assessment of whether the relationship qualifies for hedge accounting 2. b The amount of mismatch between the change in the fair value of the hedging instrument and the hedged item attributable to the hedged risk recognized in earnings under fair value hedge accounting. ##### [815-20-35-17](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:fae251c4b48f96f90a1fe45294fd06571466a1ad70ab1663543bb2303efa1494 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/). ##### [815-20-35-18](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:8892e99befeef9cc5cb96b9f8c1961dc8357a2a9723b6bbe6b6f0249f4b99f86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-103](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-103) states that, 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. That paragraph explains that implicit in the criteria 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. ##### [815-20-35-19](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:b91cf3856572e196535617224e4830780ad8abc1e6e74429d5d1f3881f281f61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the entity identifies an improved method of assessing hedge effectiveness in accordance with the guidance in paragraph [815-20-25-80](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-80) and wants to apply that method prospectively, it shall do both of the following: 1. a Discontinue the existing hedging relationship 2. b Designate the relationship anew using the improved method. ##### [815-20-35-20](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:9db3646f5eb6da54322cc4060198ae4d6d893649f87aa855c1e6320f3c5627b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The new method of assessing hedge effectiveness shall be applied prospectively and shall also be applied to similar hedges unless the use of a different method for similar hedges is justified. A change in the method of assessing hedge effectiveness by an entity shall not be considered a change in accounting principle as defined in Topic 250.