# ASC 815-20-55: Derivatives and Hedging — Hedging—General — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/20/#55-implementation-guidance-and-illustrations) 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): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8edd2719d01b74b815297e1f2a8063926b8079da5704d504aaa16495c1c8153d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/815/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [815-20-55-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:52564efde477a9f1dc75d096333b0538ecffd4f888a43f8ed6645e5bb601737d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance is organized as follows: 1. a Eligibility of hedged items 2. b Eligibility of hedging instruments 3. c Hedge effectiveness. ##### [815-20-55-2](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:004b43817fe5512c16f2b6a5393a243c8669b616d4575e49b4c1464eec9b1a4c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance on eligibility criteria for hedged items is organized as follows: 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 a [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 3. c Hedged items in fair value hedges only 4. d Hedged items in cash flow hedges only 5. e Hedged items involving foreign exchange risk 6. f Strategic risk ineligible as hedged risk. ##### [815-20-55-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8a8784fd40e17d6912b3cb2d1da3c1dd658fb9d281645f01965027600774d51d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-55-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f1fb27f557fdd3f349f9cbfb3cff4f0710bcea933ac6bafd40b0d01c85562c1c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-55-4A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-4A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1585750f8a253a85b81ca520d4398821f64ba0b9fb2a195a24d3ae995d015a7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance on hedged items in fair value hedges only is organized as follows: 1. a [Subaragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 2. b Application of the definition of firm commitment 3. c Determining whether risk exposure is shared within a portfolio 4. d Servicing rights as a hedged item. 5. e [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.") in a portfolio layer method hedge. ##### [815-20-55-5](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8ad91bfc5c460416912fb5c662ae5bc44b0737003938e6797c79252fe1a45a91 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/). ##### [815-20-55-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:603e6106d0ecb114c9e85e7f56a302d562287660107a16cd80795e4943175875 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/). ##### [815-20-55-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b6076e86b2c97092c1a6cae9ad8f435e694e1c16c8f55aa6ec3d0d657598db4e 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/). ##### [815-20-55-8](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a23f202662c605ccb89861972b723fe5c23be71d7f0b0bf86415149a9bd698fe 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/). ##### [815-20-55-9](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1b8fd35f0a5884cdd6623b001fe2a8da9b220d0704fac570c74eda9ef8606802 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-55-10](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3914c748f8a65f1fe8e3ef750b9873d86d2b5a9b5d7efe106b2859c496331ff3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance discusses whether certain items meet the definition 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.") for purposes of paragraph [815-20-25-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12). ##### [815-20-55-11](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3309ce126e80baffd730bf230f5f667ef3205c26fb10a2f4262b27e07d5198ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A firm commitment that represents an asset or liability that a specific accounting standard prohibits recognizing (such as a lessor's noncancellable operating lease or an unrecognized mortgage servicing right) may nevertheless be designated as the hedged item in a [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."). ##### [815-20-55-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:0db9d3843b048435be283937c36485de94b39c86e285c067aa3f5b11bb954c28 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A mortgage banker's unrecognized interest rate lock commitment does not qualify as a firm commitment (because as an option it does not obligate both parties) and thus is not eligible for fair value hedge accounting as the hedged item. (However, a mortgage banker's forward sale commitments, which are [derivative instruments](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.") that lock in the prices at which the mortgage loans will be sold to investors, may qualify as hedging instruments in [cash flow hedges](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.") of the forecasted sales of mortgage loans.) ##### [815-20-55-13](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:2878b27ad8030d2fb5dca4e452eb980d855ca4b2dc6a8fce7f1f2b80e469df1c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A supply contract for which the contract price is fixed only in certain circumstances (such as if the selling price is above an embedded price cap or below an embedded price floor) meets the definition of a firm commitment for purposes of designating the hedged item in a fair value hedge. Provided the embedded price cap or floor is considered clearly and closely related to the host contract and therefore is not accounted for separately under paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1), either party to the supply contract can hedge the fair value exposure arising from the cap or floor. ##### [815-20-55-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:dfa7788955f581d98cf7bf2c7a8fd6c655e619d64e2292621e7c281d325c97b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance discusses the application of the guidance in paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) that the individual assets or individual liabilities within a portfolio hedged in a fair value hedge shall share the risk exposure for which they are designated as being hedged. If the change in fair value of a hedged portfolio attributable to the hedged risk was 10 percent during a reporting period, the change in the fair values attributable to the hedged risk for each item constituting the portfolio should be expected to be within a fairly narrow range, such as 9 percent to 11 percent. In contrast, an expectation that the change in fair value attributable to the hedged risk for individual items in the portfolio would range from 7 percent to 13 percent would be inconsistent with the requirement in that paragraph. ##### [815-20-55-14A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-14A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:20cf8147ac2d783da476eb44fb60ba7eead431273b0e6b67c6b72cb2566d2de3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If both of the following conditions exist, the quantitative test described in paragraph [815-20-55-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-14) may be performed qualitatively on a hedge-by-hedge basis and only at hedge inception: 1. a The hedged item is a hedged layer in a portfolio layer hedge designated in accordance with paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A). 2. b An entity measures the change in fair value of the hedged item based on the benchmark rate component of the contractual coupon cash flows in accordance with paragraph [815-25-35-13](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13). Using the benchmark rate component of the contractual coupon cash flows when all assets have the same assumed maturity date and prepayment risk (if applicable) does not affect the measurement of the hedged item results in all hedged items having the same benchmark rate component coupon cash flows. ##### [815-20-55-14B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-14B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:e3ff02cb0c53bda7115a6363dd2d5b3ae3a53e0436eb1b6708934b3f2e5ca41a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the hedging instrument is a derivative with a notional amount that changes over time (for example, an amortizing-notional interest rate swap), the condition in paragraph [815-20-55-14A(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-14A) can be satisfied because the swap has a contractual fixed rate and, thus, the hedged item can be measured on the basis of a single benchmark component of the contractual coupon cash flows in accordance with paragraph [815-25-35-13](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13). An entity that designates a derivative with a notional amount that changes over time as a hedging instrument is designating a single hedging relationship with a single benchmark rate component of the contractual coupon cash flows. ##### [815-20-55-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:206dd341e7e34657f6136dc2c0d9a9245cc450baf83fba2bf93277346ce00226 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In aggregating loans in a portfolio to be hedged, an entity may choose to consider some of the following characteristics, as appropriate: 1. a Loan type 2. b Loan size 3. c Nature and location of collateral 4. d Interest rate type (fixed or variable) 5. e Coupon interest rate or the benchmark rate component of the contractual coupon cash flows (if fixed) 6. f Scheduled maturity or the assumed maturity 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) 7. g Prepayment history of the loans (if seasoned) 8. h Expected prepayment performance in varying interest rate scenarios. ##### [815-20-55-15A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-15A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ad07f12dfd905cc908acef2f459eb1172b6e7da1bae088ffea43178b5d349c9f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance describes the hedged item in a portfolio layer method hedge in several scenarios. ##### [815-20-55-15B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-15B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d10113758c5ebb99b40873cbe7aa4476c11de304cba318981e38ac1b431d19b8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a closed portfolio of financial assets of $100 million, Entity A designates a single hedged item of $10 million of the assets that is expected to be outstanding for the hedge period of Years 1–5. Entity A designates as the hedging instrument a spot-starting constant-notional pay-fixed, receive-variable interest rate swap with a notional amount of $10 million and a term of 5 years. In this single-layer hedge, the hedged layer represents $10 million of assets in the closed portfolio that is not expected to be affected by prepayments, defaults, or other factors affecting the timing or amount of cash flows for the hedge period of Years 1–5. ##### [815-20-55-15C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-15C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:76b14b4a0ab0928924ebd40c2dde18016548ba1981c42e5fef388e12e8b61515 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a closed portfolio of financial assets of $100 million, Entity A designates a hedged item of $20 million of assets that is expected to be outstanding for the hedge period of Years 1–3. It also designates a hedged item of $10 million of the assets in the closed portfolio that is expected to be outstanding for the hedge period of Years 1–5. For the $20 million hedged item, Entity A designates as the hedging instrument a spot-starting constant-notional pay-fixed, receive-variable interest rate swap with a notional amount of $20 million and a term of 3 years. For the $10 million hedged item, Entity A designates as the hedging instrument a spot-starting constant-notional pay-fixed, receive-variable interest rate swap with a notional amount of $10 million and a term of 5 years. In this scenario, there are two hedged layers: 1. a A hedged layer representing $20 million of assets in the closed portfolio that is not expected to be affected by prepayments, defaults, or other factors affecting the timing or amount of cash flows for the hedge period of Years 1–3 2. b A hedged layer representing $10 million of assets in the closed portfolio that is not expected to be affected by prepayments, defaults, or other factors affecting the timing or amount of cash flows for the hedge period of Years 1–5. Although the $10 million and $20 million hedged layers are separately designated, Entity A should consider the aggregate hedged amount of $30 million in Years 1–3 when assessing whether the hedged layers are anticipated to be outstanding in accordance with paragraphs [815-20-25-12A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) and [815-25-35-7A](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-7A). ##### [815-20-55-15D](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-15D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a8c403766363d8d4e777df41491c0a819bb756432e9a214a25e740e61284774b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a closed portfolio of financial assets of $100 million, Entity A designates a single hedged item of $30 million for Year 1 that decreases to an amount of $20 million for Year 2 and $10 million for Year 3. Entity A designates a single amortizing-notional swap as the hedging instrument. In this single-layer hedge, the hedged layer represents a $30 million stated amount for Year 1, a $20 million stated amount for Year 2, and a $10 million stated amount for Year 3, which reflects the amortizing-notional swap’s features. ##### [815-20-55-16](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bf2d12cbe937507764260c057e4d7217641adf3534b28c309d8f0cc2c46b4527 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) provides criteria under which similar assets or similar liabilities may be aggregated and hedged as a portfolio under a fair value hedge, requiring, in part, that the individual assets or individual liabilities share the risk exposure for which they are designated as being hedged. Servicers of financial assets that designate a hedged portfolio by aggregating servicing rights within one or more risk strata used under paragraph [860-50-35-9](https://asc.understandingaccounting.org/asc/860/50/#860-50-35-9) would not necessarily comply with the requirement in paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) for portfolios of similar assets because the risk strata under paragraph [860-50-35-9](https://asc.understandingaccounting.org/asc/860/50/#860-50-35-9) can be based on any predominant risk characteristic, including date of origination or geographic location. ##### [815-20-55-17](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-17) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:77701afe0ff2c75841142558c946a65b33a2c8f3ed0279a7519463c66a6dcad9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance on hedged items in cash flow hedges only is organized as follows: 1. a Exposure to variability in cash flows 2. b Variable price component of a purchase contract as hedged item 3. c Grouping individual transactions 4. d Probability 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.") 5. e Specificity of timing of a forecasted transaction 6. ee Determining if 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.") exists 7. eee Contractually specified component in a not-yet-existing contract 8. f Forecasted acquisition of a marketable debt security 9. g Stock-appreciation-right obligation as a hedged item 10. h First-payments-received technique in hedging variable nonbenchmark interest payments on a group of loans. 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)This guidance on hedged items in cash flow hedges only is organized as follows: 1. a Exposure to variability in cash flows 2. b Variable price component (or subcomponent) of a forecasted transaction to purchase or sell a nonfinancial asset as hedged risk 3. c Grouping individual transactions 4. d Probability 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.") 5. e Specificity of timing of a forecasted transaction 6. ee [Subparagraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) 7. eee [Subparagraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) 8. f Forecasted acquisition of a marketable debt security 9. g Stock-appreciation-right obligation as a hedged item 10. h First-payments-received technique in hedging variable interest payments on a group of loans. ##### [815-20-55-18](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bbd867e80b0d10f8e48e96c297c0a9e6ff17fc6cb612d397c568921e8bc085f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The future sale of an asset or settlement of a liability that exposes an entity (consistent with the criterion in paragraph [815-20-25-15(c)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15)) to the risk of a change in fair value may result in recognizing a gain or loss in earnings when the sale or settlement occurs. Changes in market price could change the amount for which the asset or liability could be sold or settled and, consequently, change the amount of gain or loss recognized. [Forecasted transactions](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.") that expose an entity to cash flow risk have the potential to affect reported earnings because the amount of related revenue or expense may differ depending on the price eventually paid or received. Thus, an entity could designate the forecasted sale of a product at the market price at the date of sale as a hedged transaction because revenue will be recorded at that future sales price. ##### [815-20-55-18A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-18A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:2dd169221527f81529475575094b8dd01de298437c0a63978b428d06c9eef7a7 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)
Editor's Note: Paragraph 815-20-55-18A will be added upon transition, and the preceding heading will be amended as shown below.
• • • > Variable Price Component (or Subcomponent) of a Forecasted Transaction to Purchase or Sell a Nonfinancial Asset as Hedged Risk
This guidance discusses the implementation of paragraphs [815-20-25-15(i)(3)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) and [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). ##### [815-20-55-18B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-18B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9abc25f8408a0e86dafdf6f8ef7b727a6de19a4d93484277a06ad9eb8fbec2b1 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 if the conditions in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) are satisfied. The scope of that paragraph includes forecasted transactions to purchase or sell nonfinancial assets consummated in spot markets and in accordance with arrangements to purchase or sell nonfinancial assets in the future. ##### [815-20-55-18C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-18C) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a5593464daedfee40242c109b343eedae8f818041fc651750ac10e41fc2e1462 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)To be eligible to designate a hedge of a variable component of a forecasted purchase price or sales price of a nonfinancial asset in the spot market, paragraph [815-20-25-22C(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) requires that the component being designated as the hedged risk be 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. If an entity wants to designate a hedge of a variable component of a forecasted purchase or sales price of a nonfinancial asset to be consummated in accordance with a variable price contract, paragraph [815-20-25-22C(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) requires that the component being hedged be both 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 and explicitly referenced in the agreement’s pricing formula used to determine that purchase or sales price. Alternatively, if an entity wants to hedge a subcomponent of an explicitly referenced component in an agreement’s pricing formula, paragraph [815-20-25-22C(b)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) requires that the subcomponent be 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 that explicitly referenced component and that the explicitly referenced 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. ##### [815-20-55-18D](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-18D) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:01634fada1085eafd438432a7f9cad2d1d6a2daa1f53ad60deebd973af57a4f4 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)If an entity enters into an agreement to purchase or sell a nonfinancial asset that meets the definition of a derivative and the entity applies the normal purchases and normal sales scope exception in Subtopic 815-10, the condition in paragraph [815-20-25-22C(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) is met for the variable pricing component that is explicitly referenced in the agreement. Entities that do not apply the normal purchases and normal sales scope exception in Subtopic 815-10 and account for an agreement to purchase or sell a nonfinancial asset as a derivative may, as permitted by paragraph [815-20-25-15(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), designate a variable component (or subcomponent) of the forecasted purchase price or sales price as the hedged risk as discussed in paragraph [815-20-55-18C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-18C) if the conditions in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) are met. ##### [815-20-55-19](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-19) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:56e36adc00d2ad464947ecdcacdf7cd9f5231004ef3b81914cc4066ddd3e202a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance discusses the implementation of paragraph [815-20-25-15(i)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15). An entity enters into a contract that requires it to pay a total contract price based on the VWX sugar index on the date of purchase plus a variable basis differential related to transportation costs. The entity may use a derivative instrument whose underlying is the price of sugar or any other underlying for which the derivative would be highly effective in achieving offsetting cash flows in a cash flow hedge of its forecasted purchases under the contract. In accordance with paragraph [815-20-25-15(i)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), the entity may designate as the risk being hedged the risk of changes in the cash flows relating to all changes in the purchase price of the items being acquired under the contract. The entity also may designate the variability in cash flows attributable to changes in the contractually specified component (VWX sugar index) as the hedged risk. In that case, the entity not only must consider whether the VWX sugar index is explicitly referenced in the purchase agreement but also must ensure that the requirements in paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) are met. In both scenarios, the entity must determine that all the criteria for cash flow hedges are satisfied, including that the hedging relationship is highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. 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)This guidance discusses several hedge designation methods that an entity may use when hedging the purchase of a nonfinancial asset. An entity enters into a contract that requires it to pay a total contract price based on the VWX sugar index on the date of purchase plus a variable basis differential related to transportation costs. The entity may use a derivative instrument whose underlying is the price of sugar or any other underlying for which the derivative would be highly effective in achieving offsetting cash flows attributable to the hedged risk in a cash flow hedge of its forecasted purchases under the contract. In accordance with paragraph [815-20-25-15(i)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), the entity may designate as the risk being hedged the risk of changes in the cash flows relating to all changes in the purchase price of the items being acquired under the contract. In accordance with paragraph [815-20-25-15(i)(3)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), the entity also may designate the variability in cash flows attributable to changes in a component (or subcomponent) of the purchase price of the nonfinancial asset as the hedged risk. In this Example, the entity could designate as the hedged risk the VWX sugar index or the variable basis differential related to transportation costs, both of which are variable components explicitly referenced in the purchase agreement if the conditions in paragraph [815-20-25-22C(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) are met. The entity also could designate a subcomponent of either the VWX sugar index or transportation costs as the hedged risk. If designating a subcomponent, the entity must ensure that the conditions in paragraph [815-20-25-22C(b)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C)are met. In all scenarios, the entity must determine that all the criteria for cash flow hedges are satisfied, including that the hedging relationship is highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. ##### [815-20-55-20](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f5cef2273ae70ace62b7f7513c56a4e0ca778e542e53480c15d5ce079d22aa55 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. It sometimes will be impractical (perhaps impossible) and not cost-effective for an entity to identify each individual transaction that is being hedged. An example is a group of sales or purchases over a period of time to or from one or more parties. This Subtopic permits an entity to aggregate individual forecasted transactions for hedging purposes in some circumstances. As it does for a hedge of a single forecasted transaction, paragraph [815-20-25-3(d)(1)(vi)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) requires that an entity identify the hedged transactions with sufficient specificity that it is possible to determine which transactions are hedged transactions when they occur. ##### [815-20-55-21](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:95a4ab3caa739b1a33d4a1bb2bc13e405d3393febf0c01f26a2215eb9f244021 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, an entity that expects to sell at least 300,000 units of a particular product in its next fiscal quarter might designate the sales of the first 300,000 units as the hedged transactions. Alternatively, it might designate the first 100,000 sales in each month as the hedged transactions. It could not, however, simply designate any sales of 300,000 units during the quarter as the hedged transaction because it then would be impossible to determine whether the first sales transaction of the quarter was a hedged transaction. Similarly, an entity could not designate the last 300,000 sales of the quarter as the hedged transaction because it would not be possible to determine whether sales early in the quarter were hedged or not. ##### [815-20-55-22](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:777fe4a581184fb6464a79b7b0869ac97f89ed4651c54ec5b796f1883e3d0c1a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the guidance in this Subtopic, a single derivative instrument of appropriate size could be designated as hedging a given amount of aggregated forecasted transactions, such as any of the following: 1. a Forecasted sales of a particular product to numerous customers within a specified time period, such as a month, a quarter, or a year 2. b Forecasted purchases of a particular product from the same or different vendors at different dates within a specified time period 3. c Forecasted interest payments on several variable-rate debt instruments within a specified time period. ##### [815-20-55-23](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:33485d12c98d81034c955773256fa99ff58e5f20a99d04b2504776515f69b9ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the time of hedge designation only, the transactions in each group must share the risk exposure for which they are being hedged. For example, the interest payments in the group in (c) in the preceding paragraph shall vary with the same index to qualify for hedging with a single derivative instrument. 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)The transactions in each group must have a similar risk exposure for which they are being hedged. To satisfy that requirement, an entity should determine whether the forecasted transactions are expected to have a similar risk exposure prospectively at hedge inception and on an ongoing basis. In addition, an entity should determine whether the forecasted transactions had a similar risk exposure retrospectively on an ongoing basis during the hedge period. An entity should assess similarity each time it assesses hedge effectiveness for a group (for timing of hedge effectiveness assessments, see paragraphs [815-20-25-79 through 25-79A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) , and for certain private companies and certain not-for-profit entities, see paragraphs [815-20-25-139 through 25-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) ). ##### [815-20-55-23A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ced42a6a825777cef755d514cc493197f85a3ca1cbb32ab616471a6ec00996bb 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 should determine that the risk exposures being hedged in a group of forecasted transactions are similar by applying either of the following methods: 1. a The entity determines whether the designated hedging instrument is highly effective in achieving offsetting changes in cash flows attributable to each hedged risk in the group, assessed on an individual basis, by applying the guidance in paragraph [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) and paragraphs [815-30-35-10 through 35-32](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10) for assessing hedge effectiveness. 2. b The entity determines whether each hedged risk related to a forecasted transaction hedged in a group is similar to each other hedged risk in the group. In that assessment, an entity should use the same threshold applied to determine whether a relationship is highly effective. When assessing whether hedged risks in a group of forecasted transactions are similar, an entity should consider the guidance in paragraph [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) as well as the guidance in paragraphs [815-30-35-10 through 35-32](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10) for hedges of interest rate risk. Ordinarily, an entity should apply the selected method consistently to similar hedges. Use of different methods for similar hedges should be justified. ##### [815-20-55-23B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c6a536bc3d77643ad352169bda713dc24fd5ffd9247bfc5149bcc42bef2cb4f1 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)If an entity applies one of the qualitative methods in paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) for purposes of assessing hedge effectiveness and it applies the similar risk assessment method described in paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A), it also may assume that the hedged risks related to a group of forecasted transactions are similar because the hedging instrument is considered highly effective qualitatively against each hedged risk in the group. ##### [815-20-55-23C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23C) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:cfb7ed41f0b9bda705ae7db846e391fdc5942cf3896bb922ee417127e0d33628 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)After performing an initial quantitative assessment at hedge inception (if required), an entity may elect on a hedge-by-hedge basis to qualitatively assess whether a group of individual forecasted transactions have a similar risk exposure in subsequent periods, if the entity can reasonably support an expectation of similar risk on a qualitative basis, in a manner similar to the guidance in paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) . The qualitative assessment used to reasonably support an expectation of high effectiveness also may be used to support an expectation of similar risk exposure if an entity applies the similar risk assessment method described in paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A). ##### [815-20-55-23D](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23D) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5e1d9bee6268e0a708d3f5df5a99800678b32d7bf0de0f469679fa10dc36840d 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)If an entity determines as part of its ongoing similar risk assessment that one or more hedged risks related to the group of individual forecasted transactions are no longer similar, it should dedesignate the hedging relationship as of the last date when all hedged risks in the group were assessed to have similar risk exposure, unless the entity can determine the specific date that all hedged risks in the group were no longer similar. Amounts previously recognized in accumulated other comprehensive income should remain until the forecasted transactions affect earnings or become probable of not occurring in accordance with paragraphs [815-30-40-4 through 40-6](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) . ##### [815-20-55-24](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:80c61ad1de3591dadf0096c030301815842cd9eb011b050edbc2055f04981b75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An assessment of the likelihood that a forecasted transaction will take place (see paragraph [815-20-25-15(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15)) should not be based solely on management's intent because intent is not verifiable. The transaction's probability should be supported by observable facts and the attendant circumstances. Consideration should be given to the following circumstances in assessing the likelihood that a transaction will occur. 1. a The frequency of similar past transactions 2. b The financial and operational ability of the entity to carry out the transaction 3. c Substantial commitments of resources to a particular activity (for example, a manufacturing facility that can be used in the short run only to process a particular type of commodity) 4. d The extent of loss or disruption of operations that could result if the transaction does not occur 5. e The likelihood that transactions with substantially different characteristics might be used to achieve the same business purpose (for example, an entity that intends to raise cash may have several ways of doing so, ranging from a short-term bank loan to a common stock offering). ##### [815-20-55-25](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:cecb0ae4e2698cab8d33601377044885e7dd8f664556e84e42c6b53a315e5047 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Both the length of time until a forecasted transaction is projected to occur and the quantity of the forecasted transaction are considerations in determining probability. Other factors being equal, the more distant a forecasted transaction is or the greater the physical quantity or future value of a forecasted transaction, the less likely it is that the transaction would be considered probable and the stronger the evidence that would be required to support an assertion that it is probable. ##### [815-20-55-26](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:19e7756b23c9a3f8f135b5f1bc5f8f6bcf2932b5342a133a9122fa0b71bed532 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-3(d)(1)(vi)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) requires an entity to identify the hedged forecasted transaction with sufficient specificity to make it clear whether a particular transaction is a hedged transaction when it occurs. Paragraph [815-20-25-3(d)(1)(i)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) requires that an entity document the date on or period within which the forecasted transaction is expected to occur. An entity should not be able to choose when to reclassify into earnings a gain or loss on a hedging instrument in accumulated other comprehensive income after the gain or loss has occurred by asserting that the instrument hedges a transaction that has or has not yet occurred. However, this Subtopic does not require that an entity be able to specify at the time of entering into a hedge the date on which the hedged forecasted transaction will occur. ##### [815-20-55-26A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-26A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:50fca77fa6d2e621c8ee1a0c74413e3261eacedd8bc0531e4bfe8885fac24e32 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The definition of a contractually specified component is considered to be met if the component is explicitly referenced in agreements that support the price at which a nonfinancial asset will be purchased or sold. For example, an entity intends to purchase a commodity in the commodity's spot market. If as part of the governing agreements of the transaction or commodities exchange it is noted that prices are based on a pre-defined formula that includes a specific index and a basis, those agreements may be utilized to identify a contractually specified component. After an entity determines that a contractually specified component exists, it must assess whether the variability in cash flows attributable to changes in the contractually specified component may be designated as the hedged risk in accordance with paragraphs [815-20-25-22A through 25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) . 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 815-20-55-26A will be superseded upon transition, together with the heading shown below.
• • • > Determining Whether a Contractually Specified Component Exists
[Paragraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) ##### [815-20-55-26B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-26B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:e18be3bae48ed6ad897006e245e311cfef0e2fd01886aea77aa19dcd6b66c901 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance discusses the implementation of paragraphs [815-20-25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22B) and [815-30-35-37A](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37A). Entity A's objective is to hedge the variability in cash flows attributable to changes in a contractually specified component in forecasted purchases of a specified quantity of soybeans on various dates during June 20X1. Entity A has executed contracts to purchase soybeans only through the end of March 20X1. Entity A's contracts to purchase soybeans typically are based on the ABC soybean index price plus a variable basis differential representing transportation costs. Entity A expects that the forecasted purchases during June 20X1 will be based on the ABC soybean index price plus a variable basis differential. 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 815-20-55-26B will be superseded upon transition, together with the heading shown below.
• • • > Contractually Specified Component in a Not-Yet-Existing Contract
[Paragraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) ##### [815-20-55-26C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-26C) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:6fd737e756426d499b93eb355dbbdf4eee6188c593cdc16e5c84448e749220bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 20X1, Entity A enters into a forward contract indexed to the ABC soybean index that matures on June 30, 20X1. The forward contract is designated as a hedging instrument in a cash flow hedge in which the hedged item is documented as the forecasted purchases of a specified quantity of soybeans during June 20X1. As of the date of hedge designation, Entity A expects the contractually specified component that will be in the contract once it is executed to be the ABC soybean index. Therefore, in accordance with paragraph [815-20-25-3(d)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), Entity A documents as the hedged risk the variability in cash flows attributable to changes in the contractually specified ABC soybean index in the not-yet-existing contract. On January 1, 20X1, Entity A determines that all requirements for cash flow hedge accounting are met and that the requirements of paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) will be met in the contract once executed in accordance with paragraph [815-20-25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22B). Entity A also will assess whether the criteria in [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) are met when the contract is executed. 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/) ##### [815-20-55-26D](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-26D) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:255c0f6da9ebc956b72d5b22b436e1df8c3a9d12dda70905451eca1f51a2c0ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As part of its normal process of assessing whether it remains probable that the hedged forecasted transactions will occur, on March 31, 20X1, Entity A determines that the forecasted purchases of soybeans in June 20X1 will occur but that the price of the soybeans to be purchased will be based on the XYZ soybean index rather than the ABC soybean index. As of March 31, 20X1, Entity A begins assessing the hedge effectiveness of the hedging relationship on the basis of the changes in cash flows associated with the forecasted purchases of soybeans attributable to variability in the XYZ soybean index. Because the hedged forecasted transactions (that is, purchases of soybeans) are still probable of occurring, Entity A may continue to apply hedge accounting if the hedging instrument (indexed to the ABC soybean index) is highly effective at achieving offsetting cash flows attributable to the revised contractually specified component (the XYZ soybean index). On April 30, 20X1, Entity A enters into a contract to purchase soybeans throughout June 20X1 based on the XYZ soybean index price plus a variable basis differential representing transportation costs. 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/) ##### [815-20-55-26E](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-26E) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8c0eb5b66c5e8325c6d725d6fcd2d5172207317f47ba6d5b648b51be2644f653 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the hedging instrument is not highly effective at achieving offsetting cash flows attributable to the revised contractually specified component, the hedging relationship must be discontinued. As long as the hedged forecasted transactions (that is, the forecasted purchases of the specified quantity of soybeans) are still probable of occurring, Entity A would reclassify amounts from accumulated other comprehensive income to earnings when the hedged forecasted transaction affects earnings in accordance with paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . The reclassified amounts should be presented in the same income statement line item as the earnings effect of the hedged item. Immediate reclassification of amounts from accumulated other comprehensive income to earnings would be required only if it becomes probable that the hedged forecasted transaction (that is, the purchases of the specified quantity of soybeans in June 20X1) will not occur. As discussed in paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5), a pattern of determining that hedged forecasted transactions are probable of not occurring would call into question both an entity's ability to accurately predict forecasted transactions and the propriety of applying cash flow hedge accounting in the future for similar forecasted transactions. 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/) ##### [815-20-55-27](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:41d4c401dbd23fa05d11609300e7148b3c9eb882fe9da746015f986fbe7dd545 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This discussion provides additional information on the forecasted acquisition of a marketable debt security as a hedged item (see paragraph [815-20-25-16\[b\]](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-16)). ##### [815-20-55-28](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9fce3e97dee7f3758faa4de2395765c86e528e8d38b66987df19a218c9148d3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity seeking to reduce the variability of the price at which it will acquire a marketable debt security in the future might use a forward contract to fix the price today. ##### [815-20-55-29](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:46c3122c01d11ea527aaaa78d6a4e39fbaa87770e261591ac0ae2f1cab60fbeb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. With a forward contract, the typical settlement is the delivery of the marketable debt security at a later date at the pre-fixed price. ##### [815-20-55-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:55e3e81023abdbe0a740579dd7543d983ce7072dbbd5a8701e884701509c2356 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. With a purchased option, the typical settlement might be the delivery of the marketable debt security at the ceiling price, or the holder may allow the purchased option to expire unexercised. ##### [815-20-55-31](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:880fa1b9d89e74001bf111af57fdbdf9acc49bd4d668c0ab127ab5b680d4f408 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Therefore, to qualify for cash flow hedge accounting in this circumstance, the entity shall be able to establish that it is probable that it will acquire the marketable debt security by any of the following means: 1. a Exercising the option designated as the hedging instrument if it is in the money 2. b Purchasing the security in the marketplace at its prevailing market price if the option is out of the money. ##### [815-20-55-32](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:029fdeb095366f40385c1ef3aeeb35f22216d170080b785eb5ee8cf1e87a7a61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the entity expects to acquire the marketable debt security only by exercising the option and only if the option were in the money, a cash flow hedging relationship typically would not be designated because acquisition of the security is contingent and thus would not be considered probable. ##### [815-20-55-33](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d49b62aa7af9898950c14d3ce231e6bb4abe11540494ff810a5000ce9ee4eb6d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses the application of the criteria in Section 815-20-25 to an unrecognized, nonvested [stock appreciation right](https://asc.understandingaccounting.org/glossary/s/#stock-appreciation-right "A stock appreciation right is an award entitling employees to receive cash, stock, or a combination of cash and stock in an amount equivalent to any excess of the fair value of a stated number of shares of the employer's stock over a stated price.") as a hedged item. An unrecognized, nonvested stock appreciation right relates to the portion of the stock appreciation right liability that has not yet been accrued. It does not refer to future fair value changes in the recognized liability for the vested portion of the stock appreciation right. To the extent that vesting of stock appreciation rights is probable, a purchased call option indexed to an entity's own stock that is recorded as an asset and accounted for as a derivative instrument may be designated as the hedging instrument in a hedge of cash flow variability of expected future obligations associated with unrecognized, nonvested stock appreciation rights if the option is classified as an asset in the entity's financial statements and the option is a derivative instrument subject to Subtopic 815-10. Presumably, if using this strategy, hedge effectiveness typically would be assessed based on changes in the entire value of the purchased call option, rather than just the intrinsic value of the option because the fair value of the unrecognized, nonvested stock appreciation rights likewise consists of a time value portion and an intrinsic value portion. Because an unrecognized, nonvested stock appreciation right results in exposure to cash flow variability of expected future obligations that affects reported earnings, it is eligible to be designated as being hedged. A stock appreciation right that is recognized as a liability may not be designated as being hedged in a cash flow hedge because the hedged cash flow variability in a recognized stock appreciation right relates to a liability that is remeasured with changes in fair value reported currently in earnings. The hedge of exposure to cash flow variability in an unrecognized, nonvested stock appreciation right could be expected to be highly effective. The entity's stock price is the underlying for both the unrecognized, nonvested stock appreciation right and the option on the entity's own stock. Changes in fair value of the purchased call option on the entity's own stock would be recorded in other comprehensive income consistent with paragraph [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3). As required by paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) , the amount in other comprehensive income would be reclassified into earnings concurrent with the recognition in earnings of compensation cost on the stock appreciation right that relates to those fair value changes that occurred during the hedge period over the requisite service period. ##### [815-20-55-33A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-33A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d99de84abe7abb2b46692438d7a265fa0440a9e1acd2aa665abbc366aa1d7d95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A first-payments-received technique for identifying the hedged forecasted transactions (that is, the hedged interest payments) may be used in a cash flow hedge of interest rate risk associated with interest payments for a rolling portfolio of prepayable interest-bearing loans (or other interest-bearing financial assets), provided all other conditions for a cash flow hedge have been met. Such a technique involves identifying the hedged forecasted transactions in a cash flow hedge as the first interest payments based on the contractually specified interest rate received by an entity during each recurring period of a specified length and beginning date for the period covered by the hedging instrument. Example 4, Case A (see paragraphs [815-20-55-91 through 55-96](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-91) ) illustrates this technique. 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 first-payments-received technique for identifying the hedged forecasted transactions (that is, the hedged interest payments) may be used in a cash flow hedge of interest rate risk associated with interest payments for a rolling portfolio of prepayable interest-bearing loans (or other interest-bearing financial assets) if all other conditions for a cash flow hedge have been met. Such a technique involves identifying the hedged forecasted transactions in a cash flow hedge as the first interest payments based on the contractually specified interest rate received by an entity during each recurring period of a specified length and beginning date for the period covered by the hedging instrument. Example 4, Case A (see paragraphs [815-20-55-91 through 55-96A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-91) )illustrates this technique. ##### [815-20-55-33B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-33B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:571ad20cb33ac6fad16fc86a807805af945a06e7c522a878233472917f5909e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Similarly, a comparable first-payments-made technique may be used to identify the hedged forecasted transactions in a cash flow hedge of the contractually specified rate-based interest payments for a group of the reporting entity's financial liabilities, provided all other conditions for a cash flow hedge have been met. ##### [815-20-55-33C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-33C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bf44c35b892561d850aa90a58d8947916acc1b107e2791a851621d9504194a78 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/). ##### [815-20-55-33D](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-33D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f10d334eb22d69affbdf9647302303e939f4f6fd3f8e96d8e566a694ac4d35b5 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/). ##### [815-20-55-33E](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-33E) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:70f35461a8c1a77b2af444108a775302b3c65cccfa32444df7421b1d25c1ca43 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance regarding use of a first-cash-flows technique also may be applied to a cash flow hedging relationship in which the hedging instrument is a basis swap as discussed beginning in paragraph [815-20-25-50](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-50). However, use of that technique for those basis-swap hedging relationships may not be common because that paragraph limits designating a basis swap as the hedging instrument to cash flow hedges of the contractually specified interest payments of only recognized financial assets and liabilities existing at the inception of the hedge, whereas the first-cash-flows technique is typically applied to the contractually specified interest payments for rolling portfolios whose composition of financial assets changes over the period of the hedge. ##### [815-20-55-33F](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-33F) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3f20ff88be585fbc00f6edaa17eba83633f69c8a1b871dd8bbe5dfe6f3e7e741 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/). ##### [815-20-55-33G](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-33G) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4dd9f425dcc623cc9a5016e4b7cd2ae25e07daccb293c867cf7d9daba463ce68 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the first-payments-received technique, an entity also may designate the risk of overall changes in the hedged cash flows, which includes the risk of decreases in cash flows attributable to credit default. The use of the first-payments-received technique in those circumstances is permitted by this Subtopic as an exception even though that technique excludes the variable interest payments that are contractually due but not paid by the debtor from being hedged transactions, thereby excluding some of the risk of decreases in interest payment inflows attributable to credit default. This implementation guidance on applying the first-payments-received technique to overall changes in cash flows for interest-bearing financial assets should not be applied by analogy to other circumstances. ##### [815-20-55-34](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d1a1c031fb8206892fc725fdace84bde97f79d6f1471cfde61ac14fd4f254ecc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance on 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.") is organized as follows: 1. a Foreign-currency-denominated interest payments 2. b Foreign-currency-denominated debt instrument as both hedging instrument and hedged item. ##### [815-20-55-35](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9278afd13c7ab6a7d390cfc3aed78d87e57985b6751e1b13f7be1a68e837b7ac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may not treat foreign-currency-denominated fixed-rate interest coupon payments arising from an issuance of foreign-currency-denominated fixed-rate debt as an unrecognized firm commitment that may be designated as a hedged item in a foreign currency fair value hedge. (See paragraph [815-20-25-23](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-23).) The foreign-currency exposure of the future interest payments would not meet this Subtopic's definition of an unrecognized firm commitment because the obligation is recognized on the balance sheet—that is, the carrying amount of the foreign-currency-denominated fixed-rate debt incorporates the entity's obligation to make those future interest payments as well as the repayment of principal. However, those fixed-rate interest payments could be designated as the hedged transaction in a cash flow hedge. ##### [815-20-55-36](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:6cdf29bb7293a275781017c1ef695d9afcf59c372a3e8541f1646e2e6e2648b6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Those fixed-rate interest payments might arise as follows. An entity whose functional currency is the U.S. dollar issues fixed-rate debt denominated in a foreign currency. The debt has a fixed interest coupon that is payable semiannually in that foreign currency. The entity wishes to lock in, in U.S. dollar functional currency terms, the future interest expense that will result from the debt and enters into a derivative instrument to hedge the foreign currency risk of the fixed foreign-currency-denominated interest coupon payments. For example, the entity may enter into a foreign currency swap to receive an amount of the foreign currency required to satisfy the interest coupon obligation in exchange for U.S. dollars at each coupon date, or, alternatively, it may enter into a strip of foreign currency forward contracts that provide for receipt of an amount of foreign currency required to satisfy the interest coupon obligation in exchange for the payment of U.S. dollars at each coupon date. ##### [815-20-55-37](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d03962f045dc4e8db31c32289250224ee1f6a2111a7d4fd6fc528bffa171fc5b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance also applies to dual-currency bonds that provide for repayment of principal in the functional currency and periodic fixed-rate interest payments denominated in a foreign currency. Subtopic 830-20 applies to dual-currency bonds and requires the present value of the interest payments denominated in a foreign currency to be remeasured and the transaction gain or loss recognized in earnings. Thus, those fixed-rate interest payments on a dual-currency bond could be designated as the hedged transaction in a cash flow hedge of foreign exchange risk. ##### [815-20-55-38](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-38) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4e7a7e86d25349f6babb02251decb00addc2894ceb8b26aa70d112ee0e7f07ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A foreign-currency-denominated debt instrument that is designated as the hedging instrument in a net investment hedge may also be designated as the hedged item in a fair value 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."). The two hedging relationships address separate risk types that are permitted to be hedged individually under this Subtopic. Example 10 (see paragraph [815-20-55-127](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-127)) illustrates this circumstance. 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 foreign-currency-denominated debt instrument that is designated as the hedging instrument in a net investment hedge may also be designated as the hedged item in a fair value 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."). The two hedging relationships address separate risk types that are permitted to be hedged individually under this Subtopic. When a foreign-currency-denominated debt instrument is designated as both a hedging instrument and a hedged item, an entity should exclude from the assessment of effectiveness in the net investment hedging relationship the fair value hedge basis adjustment resulting from designating the foreign-currency-denominated debt instrument in the fair value hedge. In those situations, an entity should recognize gains and losses from the remeasurement of the foreign-currency-denominated debt instrument’s fair value basis adjustment at the spot exchange rate currently in earnings in accordance with Subtopic 830-20. If the fair value hedge of the foreign-currency-denominated debt instrument is subsequently discontinued in accordance with the guidance in Section 815-25-40, an entity should consider the foreign-currency-denominated debt instrument’s fair value hedge basis adjustment when prospectively assessing the effectiveness of the net investment hedge after the date of discontinuing the fair value hedge. Excluding the fair value hedge basis adjustment from the assessment of effectiveness in the designated net investment hedging relationship should not be applied by analogy to other circumstances. Example 10 (see paragraph [815-20-55-127](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-127)) illustrates the circumstances in which a foreign-currency-denominated debt instrument that is designated as the hedging instrument in a net investment hedge also is designated as the hedged item in a fair value hedge of interest rate risk. ##### [815-20-55-39](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9b6b123693aa9daefdbcab9d16818d4cbc038a352fff9be5341c33298d13aeed 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/). ##### [815-20-55-40](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bd9c74ad0af0f96c1d2ed7ba1df24e01154c3ddb50646631cd31639e4948ef9c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The offset criterion in paragraph [815-20-25-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) precludes hedge accounting for certain risk management techniques, such as hedges of strategic risk. For example, a U.S. manufacturer, with no export business, that designates a forward contract to buy U.S. dollars (USD) for Japanese yen (JPY) as a hedge of its USD sales would fail the requirement that the cash flows of the derivative instrument are expected to be highly effective in achieving offsetting cash flows on the hedged transaction. A weakened JPY might allow a competitor to sell goods imported from Japan more cheaply, undercutting the domestic manufacturer's prices and reducing its sales volume and revenues. However, it would be difficult for the U.S. manufacturer to expect a high degree of offset between a decline in U.S. sales revenue due to increased competition and cash inflows on a foreign currency derivative instrument. Any relationship between the exposure and the hedging derivative typically would be quite indirect, would depend on price elasticities, and would be only one of many factors influencing future results. In addition, the risk that a desired or expected number of transactions will not occur, that is, the potential absence of a transaction, is not a hedgeable risk for accounting purposes. ##### [815-20-55-41](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b205caca740f8791522635b90773a10e1a7915ccb27624ee2017c43168566fdc 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/). ##### [815-20-55-42](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f79e8d5252fb995d610f5eb86e6b556ffb80f1ddee43c8e0c1f051bdec4843a3 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/). ##### [815-20-55-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:86000f35dfcdb3e14ea18fea20ba05ea968165e8d92038b82b755e0f029ab547 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/). #### Eligibility of Hedging Instruments ##### [815-20-55-44](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a09a1dd6635361fe2bd1dacfdaba5813496e2735d084faaed9804216d3102f10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance on eligibility of hedging instruments is organized as follows: 1. a Contingent designation of a hedging instrument 2. b No hedge accounting for covered call strategies 3. c Mixed-attribute derivative commodity contracts as cash flow hedging instruments 4. d [Subparagraph superseded by Accounting Standards Update No. 2016-19](https://asc.understandingaccounting.org/updates/asu-2016-19/). 5. e Synthetic foreign currency borrowing ineligible as a hedging instrument. ##### [815-20-55-44A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-44A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4a4dd8354d39d3ce929d201656dead0c4f046bab5362b490ef4b554a8e928c13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract that meets the definition of a derivative instrument after acquisition by an entity may be designated as a hedging instrument. ##### [815-20-55-44B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-44B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f5e8a078c31b2930961f92dff92ec8da1664e3af0e40e58cdfd74f88df945ef7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During the period in which the contract does not meet the definition of a derivative instrument, that contract cannot be designated as the hedging instrument in any hedging relationship. (However, the contract could potentially be the hedged item in a fair value hedge or its cash flows could potentially be the hedged transactions in a cash flow hedge.) ##### [815-20-55-44C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-44C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b8a26a4feb048eb777b86dc81e34d6ac491e21e5bed792245c71fc8675296d63 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contingent designation of a hedging relationship in which the hedging instrument is not currently a derivative instrument but may become one cannot justify the application of hedge accounting to fair value changes occurring before inception of the hedge; the inception of that hedging relationship would be the date on which the contract meets the definition of a derivative instrument. If an entity had anticipated that a contract that was not a derivative instrument at inception might later meet the definition of a derivative instrument and has made a contingent designation of an all-in-one hedging relationship to be effective upon the date that the contract meets the definition of a derivative instrument, only the changes in the fair value of the new derivative instrument occurring after the date the contract became a derivative instrument would be recognized in other comprehensive income. ##### [815-20-55-45](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9657f1170f9ad67bd0098251b7d0afcf06abe7aade4da5c3cfbdbbf29c375b13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic does not permit hedge accounting for covered call strategies (strategies in which an entity writes an option on an asset that it owns) unless that asset is a call option that is embedded in another instrument. In a covered call strategy, any loss on the written option will be covered by the gain on the owned asset. A covered call strategy will not qualify for hedge accounting because the risk profile of the combined position is asymmetrical (the exposure to losses is greater than the potential for gains). In contrast, the risk profile of the asset alone is symmetrical or better (the potential for gains is at least as great as the exposure to losses). The symmetry requirement for hedges with written options precludes a written option that is used to sell a portion of the gain potential on an asset or liability from being eligible for hedge accounting. ##### [815-20-55-46](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ceb52a81c8125af24805e1d6ad0a4336bedb5dc9bdeaf71602ddb901eb55dc32 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Commodity contracts commonly have features of both fixed-price contracts and variable-price contracts, such as an agreement to purchase a commodity in the future at the prevailing market index price at that future date plus or minus a fixed basis differential set at the inception of the contract. Assume an example mixed-attribute contract has the characteristics of [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."), underlying, and no initial net investment and the commodity to be delivered is [readily convertible to cash](https://asc.understandingaccounting.org/glossary/r/#readily-convertible-to-cash "Assets that are readily convertible to cash have both of the following: Interchangeable (fungible) units Quoted prices available in an active market that can rapidly absorb the quantity held by the entity without significantly affecting the price. (Based on paragraph 83(a) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9Assets that are readily convertible to cash have both of the following: Interchangeable (fungible) units Quoted prices available in an active market that can rapidly absorb the quantity held by the entity without significantly affecting the price.") pursuant to the guidance beginning in paragraph [815-10-15-119](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-119). ##### [815-20-55-47](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3aa0f2396b226bf1a1ec5425bdf8372e316a648dc6349927816f5b6b9488b2bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because that mixed-attribute contract is a derivative instrument and has an underlying related solely to changes in the basis differential, that contract (as a derivative instrument) would generally not be sufficiently effective if designated as the sole hedging instrument in a cash flow hedge of the anticipated purchase or sale of the commodity—a forecasted transaction whose variability in cash flows is based on changes in both the basis differential and the base commodity price. Because its underlying relates solely to changes in the basis differential, the mixed-attribute contract would essentially be hedging only a portion of the variability in cash flows. The entity is not permitted to designate a cash flow hedging relationship as hedging only the change in cash flows attributable to changes in the basis differential. For an entity to be able to conclude that such a hedging relationship is expected to be highly effective in achieving offsetting cash flows, the entity would need to consider the likelihood of changes in the base commodity price as remote or insignificant to the variability in hedged cash flows (for the total purchase or sales price). However, the mixed-attribute contract may be combined with another derivative instrument whose underlying is the base commodity price, with the combination of those derivative instruments designated as the hedging instrument in a cash flow hedge of the overall variability of cash flows for the anticipated purchase or sale of the commodity. Such a combination would address the risk of changes in both the basis differential and the base commodity price. ##### [815-20-55-48](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a0b7dd8752b2bec052a59e165affa9ddf9f0a534986fc450b2b5a07dfa9ee8ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-55-49](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:60923d4dbc262ce70bcb26fc1f2f9b7760ad19f407668a9911f4ea27bf61c3f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A debt instrument denominated in the investor's functional currency and a cross-currency interest rate swap cannot be accounted for as synthetically created foreign-currency-denominated debt to be designated as a hedge of the entity's net investment in a foreign operation. ##### [815-20-55-50](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:dca8dc52233d471923a53b5ebf37637da1aa624b489a265a612abed20a59489e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, a parent entity that has the U.S. dollar (USD) as its functional and reporting currency has a net investment in a Japanese yen- (JPY-) functional-currency subsidiary. The parent borrows in euros (EUR) on a fixed-rate basis and simultaneously enters into a receive-EUR, pay-Japanese yen currency swap (for all interest and principal payments) to synthetically convert the borrowing into a yen-denominated borrowing. The parent entity cannot designate the EUR-denominated borrowing and the currency swap in combination as a hedging instrument for its net investment in the JPY-functional-currency subsidiary. ##### [815-20-55-51](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:20c1d3270b6b2e40e51bd3f247e94e5a153d3fffde0c5af7ad9f9a917b17f93e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An approach that would involve measuring a derivative instrument and a cash instrument as a single unit at the current [spot rate](https://asc.understandingaccounting.org/glossary/s/#spot-rate "The exchange rate for immediate delivery of currencies exchanged.") (which is used in the translation of the hedged net investment) violates the requirements of Subtopic 830-20 for translation of foreign-currency-denominated borrowings at the spot rate relevant to the currency of the borrowing. It also violates the requirements of Subtopic 815-10 for measurement of all derivative instruments at fair value. Accordingly, combining the EUR-denominated borrowing and the currency swap for designation as a single hedging instrument—a JPY-denominated borrowing—in a net investment hedge is not permitted. ##### [815-20-55-52](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:499d5ab08f25c12a1e0b0c475c37b285a312ce5416b9cb77264c0e6710a24586 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast, an entity could designate a foreign currency derivative instrument and a foreign-currency-denominated cash instrument individually as hedging different portions of its net investment in a foreign operation provided the derivative instrument and the cash instrument each individually qualified as a hedging instrument. ##### [815-20-55-53](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d941fe25a0f591757655858e451cea7871d59fa457d2661793b1bb3050f84c75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, a JPY-USD forward contract and a JPY-denominated cash instrument could each be designated as the hedging instrument in a hedge of different portions of the net investment in a JPY-functional-currency subsidiary (that is, two separate hedging relationships would be designated). #### Hedge Effectiveness ##### [815-20-55-54](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c3ddeb8ed68cedd302737671d64654ee02c91566492f40a89c37ccad6574d602 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance on hedge effectiveness is organized as follows: 1. a Changes in quantitative assessment methods 2. b Components of option time value 3. c Effect of interest rate indexes 4. d Prohibition of preset hedge coverage ratios 5. e Methodologies to assess effectiveness of fair value and cash flow hedges 6. f Applicability of the shortcut method 7. g Application of the prepayable criterion under the shortcut method 8. h Determining whether a mirror-image call provision exists in application of the shortcut method 9. i Simplified hedge accounting approach. 10. j Timing of initial quantitative prospective effectiveness assessment 11. k Eligibility of hedging relationships for subsequent qualitative effectiveness assessments 12. l Change in facts and circumstances in qualitative effectiveness assessments 13. m Income statement presentation of hedging instruments. ##### [815-20-55-55](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f9056e0ef6f9b3d5e10d23cd560600f3f5f82144df99cf18a67ec8d2aba93e29 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity elects to or is required to assess hedge effectiveness on a quantitative basis after the initial quantitative assessment of hedge effectiveness, examples of changes in the types of methods an entity may use in assessing hedge effectiveness (see paragraph [815-20-35-20](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-20)) could include the following: 1. a A change from the dollar-offset method to the use of regression analysis or vice versa 2. b A change between any one of the three methods discussed beginning in paragraph [815-30-35-10](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10) (for example, a change from the change in variable cash flows method to either the hypothetical derivative method or the change in fair value method) 3. c A change from excluding certain components of a derivative instrument gain or loss to including such components or vice versa (for example, a change from assessing effectiveness based on changes in intrinsic value to the entire change in an option's fair value) 4. d A change from assessing hedge effectiveness on a period-by-period basis to a cumulative basis or vice versa. ##### [815-20-55-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-56) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:2f4c358be717b4dd0ea14941af17b15fba16b05a7be23ac04c0e32feb61461ca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic permits a hedging relationship to be dedesignated (that is, discontinued) at any time. (See paragraphs [815-25-40-1(c)](https://asc.understandingaccounting.org/asc/815/25/#815-25-40-1) and [815-30-40-1(c)](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1).) If an entity wishes to change any of the critical terms of the hedging relationship (including the method designated for use in assessing hedge effectiveness), as documented at inception, the mechanism provided in this Subtopic to accomplish that change is the dedesignation of the original hedging relationship and the designation of a new hedging relationship that incorporates the desired changes. However, as discussed in paragraph [815-30-35-37A](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37A), a change to the hedged risk in a cash flow hedge of a forecasted transaction does not result in an automatic dedesignation of the hedging relationship if the hedging instrument continues to be highly effective at achieving offsetting cash flows associated with the hedged item attributable to the revised hedged risk. The dedesignation of an original hedging relationship and the designation of a new hedging relationship represents the application of this Subtopic and is not a change in accounting principle under Topic 250, even though the new hedging relationship may differ from the original hedging relationship only with respect to the method designated for use in assessing the hedge effectiveness of that hedging relationship. Although paragraph [815-20-35-19](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-19) refers to discontinuing an existing hedging relationship and then designating and documenting a new hedging relationship using an improved method for assessing effectiveness, that reference was not meant to imply that the perceived improved method had to be justified as a preferable method of applying an accounting principle under Topic 250. 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)This Subtopic permits a hedging relationship to be dedesignated (that is, discontinued) at any time. (See paragraphs [815-25-40-1(c)](https://asc.understandingaccounting.org/asc/815/25/#815-25-40-1) and [815-30-40-1(c)](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1).) If an entity wishes to change any of the critical terms of the hedging relationship (including the method designated for use in assessing hedge effectiveness or the method of assessing similar risk exposure), as documented at inception, the mechanism provided in this Subtopic to accomplish that change is the dedesignation of the original hedging relationship and the designation of a new hedging relationship that incorporates the desired changes. However, as discussed in paragraphs [815-30-35-37B through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) , for a cash flow hedge of forecasted interest payments on choose-your-rate debt (and related replacement debt), a change in the contractually specified interest rate (and associated change in the number and timing of forecasted interest payments within the hedged period, if any) does not result in an automatic dedesignation of the hedging relationship if the conditions in those paragraphs are met. The dedesignation of an original hedging relationship and the designation of a new hedging relationship represent the application of this Subtopic and is not a change in accounting principle under Topic 250, even though the new hedging relationship may differ from the original hedging relationship only with respect to the method designated for use in assessing the similar risk exposure or hedge effectiveness of that hedging relationship. Although paragraph [815-20-35-19](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-19) refers to discontinuing an existing hedging relationship and then designating and documenting a new hedging relationship using an improved method for assessing effectiveness, that reference was not meant to imply that the perceived improved method had to be justified as a preferable method of applying an accounting principle under Topic 250. ##### [815-20-55-56A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-56A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:0e32cd06401fce1e6a183cd25fd26423825c6908c4990c6e711c6925633a7bda Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the purposes of applying the guidance in paragraph [815-20-55-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-56), a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a change in a critical term of the hedging relationship. ##### [815-20-55-57](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:6a684452ebca3126955b6bad00383b77bd755a26a7ebbf23b51a0f2ef996f27e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance discusses implementation of paragraph [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82). ##### [815-20-55-58](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:42e8c75c75ab0c72fc4111a6eea22744a9854c0d484ad3bfb70c056141a53d8d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some entities may wish to assess hedge effectiveness based on the change in an option's value excluding a certain aspect of the change in the [option's time value](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."). For example, some entities may wish to exclude the change in time value attributable to the passage of time (theta) from the assessment of hedge effectiveness, while assessing hedge effectiveness based on the remaining components of changes in an option's value. As an illustration, if out-of-the-money options are designated as hedging instruments, changes in value of the option are primarily driven by the change, if any, in the value of the underlying (delta). If the price of the underlying asset changes, in effective hedging strategies involving out-of-the-money options, the hedge gain or loss due to delta would offset the change in value of the hedged item; however, if the price of the underlying does not change, there is no change in fair value attributable to changes in delta. In that case, the only change in the option's value is attributable to the passage of time (theta), or to changes in other market variables such as volatilities or interest rates. Accordingly, for those hedging relationships to qualify for hedge accounting, an entity may need to exclude the change in value attributable to theta from the assessment of hedge effectiveness. ##### [815-20-55-59](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-59) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:6d906a6c5197ecf24ddba110190086c60895665976d66a7a467fdbb73ec8e84e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other entities may wish to exclude changes in time value attributable to certain market variables—volatility (vega) or interest rates (rho)—from the assessment of hedge effectiveness. An entity may wish to exclude changes in time value attributable to volatility (vega) from the assessment of hedge effectiveness because the fair value measurement of the hedged item does not incorporate a measure of implied volatility. ##### [815-20-55-60](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-60) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4ee6222d5e9c630fef6a88ae72c3d0c11c63cca157024ad10f68cd77e56f5271 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Similarly, an entity may seek to exclude changes in time value attributable to interest rates (rho) from the assessment of hedge effectiveness. For example, in a foreign currency hedge involving a country in which interest rates are volatile, a substantial portion of the change in value of the option may be attributable to fluctuations in those interest rates, while the fair value of the hedged item is not affected correspondingly. Accordingly, for these hedging relationships to qualify for hedge accounting, an entity may need to exclude the change in value attributable to the relevant market variable from the assessment of hedge effectiveness. ##### [815-20-55-61](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-61) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:567c1a421cae53f394867bd8c7aead55fc33952ac64847d36be247a767538601 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In summary, the exclusion of a certain aspect of the change in an option's time value from the assessment of hedge effectiveness is driven by the fact that, in certain circumstances, the measurement of changes in fair value of the hedged item or changes in the cash flows of the hedged transaction does not depend on or incorporate that aspect. Option valuation models are capable of isolating the various aspects of changes in an option's time value. ##### [815-20-55-62](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:511fc8877e03b0a854c44b85d316b83ac3631daf8009508fc0a806f758be47d3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effectiveness of a cash flow hedge of the variability in interest payments of a variable-rate financial asset or liability, either existing or forecasted, is affected by the contractually specified interest rate on which the variability is based and the extent to which the hedging instrument provides offset. If the cash flows on the hedging instrument and the contractually specified interest rate of the hedged cash flows of the existing financial asset or liability or the contractually specified interest rate of the variable-rate financial asset or liability that is forecasted to be acquired or issued are based on different indexes, the basis difference between those indexes would affect the assessment of hedge effectiveness. ##### [815-20-55-62A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-62A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:803be7b0ea519e7c4450b124dff40f0345832b7e49088962802c7cf314d36216 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate as the hedged risk only the change in cash flows of the contractually specified interest rate, not an implied rate embedded in the interest rate. For example, if an entity issues variable-rate debt based on its own prime rate, it cannot designate the change in cash flows of the Fed Funds Target rate or the Wall Street Journal prime rate as the hedged risk. ##### [815-20-55-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5cb7f84dc6c67738eb92757116af5d19a48b8274dff07377728d61b0e9eef9f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subtopic 860-50 requires that if an entity subsequently measures servicing assets and servicing liabilities using the amortization method, any impairment of servicing assets, which is the amount by which the carrying amount of the servicing assets for an individual stratum exceeds their fair value, be recognized in current earnings. However, an increase in the fair value above the carrying amount of servicing assets for an individual stratum may not be recognized in current earnings. ##### [815-20-55-64](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:edd97df3f72f32eb11282d1090f62cb7b66988387db2c11820a9a595c5580da2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entities that service certain types of financial assets may wish to designate as the hedged item in a fair value hedge a prespecified percentage of the total change in fair value of those servicing rights (attributable to the hedged risk) that varies based on changes in a specified independent variable. Because the prespecified percentage for each specified independent variable can be presented in a rectangular array, that method of determining the hedged item retroactively based on the actual independent variable is sometimes referred to as the matrix method. Under that approach, at the end of the hedge assessment period, the entity would determine the hedged item and assess hedge effectiveness by determining retrospectively which hedge coverage ratio would be applied to the servicing right asset to identify the hedged item for that period. That approach is in contrast to designating the hedged item at the inception of the hedge by specifying a single percentage of that recognized servicing right asset as the hedged item. ##### [815-20-55-65](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:eaa75b3d80cd7db9e59d2381c7a6cc8aee220f810e323aba012f914cd427eff1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a fair value hedge of a portion of a recognized servicing right asset subsequently measured using the amortization method and its related impairment analysis, an entity may not designate the hedged item at the inception of the hedge by initially specifying a series of possible percentages of the servicing right asset (that is, preset hedge coverage ratios) and then determining at the end of the assessment period what specific percentage of the servicing right asset is the actual hedged item for that period based on the change in a specified independent variable during that period. Such a matrix method would not be a valid application of the provisions of this Subtopic. ##### [815-20-55-66](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1e059c40c27c3dee9329642504c44364f5dbec037de6bd9cbad60433ca53cf6a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-12(b)(2)(i)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) precludes an entity from expressing the hedged item as multiple percentages of a recognized asset or liability and then retroactively determining 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. ##### [815-20-55-67](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:afefd692e695051708028a0062532c47d5d31e53231ff49bdfc19fbac20dbdde Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is a limited exception under paragraph [815-20-25-10](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-10) in which a collar that is comprised of one purchased option and one written option that have different notional amounts is designated as the hedging instrument, and the hedged item is specified as two different proportions of the same asset based on the upper and lower rate or price range of the asset referenced in those two options. ##### [815-20-55-68](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:51b2a99fdd9fbaaed997c4f34c9ceb69c784e47f71efab220ec32e8b5eba9212 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As discussed in paragraph [815-20-25-80](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-80), if an entity assesses hedge effectiveness on a quantitative basis and elects at the inception of a hedging relationship to utilize a regression analysis approach for prospective considerations of assessing effectiveness and the dollar-offset method to perform retrospective evaluations of assessing effectiveness, then that entity must abide by the results of that methodology as long as that hedging relationship remains designated. Thus, in its retrospective evaluation, an entity might conclude that, under a dollar-offset approach, a designated hedging relationship does not qualify for hedge accounting for the period just ended, but that the hedging relationship may continue because, under a regression analysis approach, there is an expectation that the relationship will be highly effective in achieving offsetting changes in fair value or cash flows in future periods. In its retrospective evaluation, if that entity concludes that, under a dollar-offset approach, the hedging relationship has not been highly effective in having achieved offsetting changes in fair value or cash flows, hedge accounting may not be applied in the current period. Whenever a hedging relationship fails to qualify for hedge accounting in a certain assessment period, the overall change in fair value of the derivative instrument for that current period is recognized in earnings (not reported in other comprehensive income for a cash flow hedge) and the change in fair value of the hedged item would not be recognized in earnings for that period (for a fair value hedge). ##### [815-20-55-69](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:20c7528894a20a8a78b2dbbcdc8bdbb990e15dcf78644698ce5b15c1475af93f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As discussed in paragraph [815-20-35-3(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-3), if an entity assesses hedge effectiveness on a quantitative basis and elects at the inception of a hedging relationship to utilize a regression analysis (or other statistical analysis) approach for either prospective considerations or retrospective evaluations of assessing effectiveness, then that entity shall periodically update its regression analysis (or other statistical analysis). As long as an entity reruns its regression analysis and determines that the hedging relationship is still expected to be highly effective, then it can continue to apply hedge accounting without interruption. ##### [815-20-55-70](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a88091bc0fc19900ac20c7ac08268212156ad2af6a66571d558013cc661d2f08 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The application of a regression or other statistical analysis approach to assessing effectiveness is complex. Those methodologies require appropriate interpretation and understanding of the statistical inferences. ##### [815-20-55-71](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-71) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:6922293b27b90b0b44589041e2f816a46ffb775bd3a8c5191f05e807dbc37cec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Given the conditions in paragraph [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), the shortcut method cannot be applied, for example, to any of the following hedging relationships: 1. a Those hedging interest rate risk that involve hedging instruments other than interest rate swaps. 2. b For fair value hedges, those that involve hedged risks other than the risk of changes in fair value attributable to changes in the designated [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."). 3. bb For cash flow hedges, those that involve hedging relationships in which the contractually specified interest rate of a recognized interest-bearing asset or liability does not match the interest rate index of the variable leg of the interest rate swap. 4. c Those that do not involve a recognized interest-bearing asset or liability. ##### [815-20-55-72](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-72) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3bbb4295672ede546300e66da59abded17ab69a7269741c84b1eb1e05264c01f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on (c) in the preceding paragraph, the shortcut method cannot be applied in a cash flow hedge of a forecasted transaction, even if an entity determines that all critical terms of the hedging instrument and the hedged forecasted transaction are matched. ##### [815-20-55-73](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-73) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8dfa42fd57fe15cee73a6f95240442ba6f473c8c88f5dc4c3b8e67c8f7c0852f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/) ##### [815-20-55-74](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-74) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:db9ba05ab880ed4658a785645f44c0a926d6ce161613abed1d994a247bd00386 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance discusses the application of the [prepayable](https://asc.understandingaccounting.org/glossary/p/#prepayable "Able to be settled by either party before its scheduled maturity.") criterion in paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) and related guidance beginning in paragraph [815-20-25-112](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-112). ##### [815-20-55-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-75) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5e753b20302c94804fa3d24f109245bf571885ae0a51ffa739ee5aa124f337a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A debt instrument may contain various terms and provisions that permit either the debtor or the creditor to cause prepayment of the debt (that is, cause the payment of principal before the scheduled payment dates), including the terms in the following illustrative instruments: 1. a Illustrative debt instrument 1. Some fixed-rate debt instruments include a typical call option that permits the debt instrument to be called for prepayment by the debtor at a fixed amount, for example, at par or at a specified premium over par. In some instruments, the prepayment amount varies based on when the call option is exercised. Fixed-rate debt instruments that provide the borrower with the option to prepay at a fixed amount are considered prepayable under paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), because those contracts permit settlement at an amount that is potentially below the contract's fair value (absent the effect of the call provision) as of the date of settlement. Such clauses can be exercised based on an economic advantage related to changes in the designated benchmark interest rate. 2. b Illustrative debt instrument 2. Some debt instruments include contingent acceleration clauses that permit the lender to accelerate the maturity of an outstanding note only if a specified event related to the debtor's credit deterioration or other change in the debtor's credit risk occurs (for example, the debtor's failure to make timely payment, thus making it delinquent; its failure to meet specific covenant ratios; its disposition of specific significant assets, such as a factory; a declaration of cross-default; or a restructuring by the debtor). A common example is a clause in a mortgage note secured by certain property that permits the lender to accelerate the maturity of the note if the borrower sells the property. Debt instruments that include contingent acceleration clauses that permit the lender to accelerate the maturity of an outstanding note only upon the occurrence of a specified event related to the debtor's credit deterioration or other changes in the debtor's credit risk are not considered prepayable under paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104). 3. c Illustrative debt instrument 3. Some fixed-rate debt instruments include a call option that permits the debtor to repurchase the debt instrument from the creditor at an amount equal to its then fair value. Fixed-rate debt instruments that provide the debtor with the option to repurchase from the creditor the debt at an amount equal to the then fair value of the contract are not considered prepayable under paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), because that right would have a fair value of zero at all times. Such clauses, which provide the debtor with the discretionary opportunity to settle its obligation before maturity, are not exercised based on an economic advantage related to changes in the designated benchmark interest rate because the repurchases are done at fair value. 4. d Illustrative debt instrument 4. Some fixed-rate debt instruments, typically issued in private markets, include a [make-whole provision](https://asc.understandingaccounting.org/glossary/m/#make-whole-provision "A contractual option that gives a debtor (that is, an issuer) the right to pay off debt before maturity at a significant premium over the fair value of the debt at the date of settlement."). A make-whole provision differs from a typical call option, which enables the issuer to benefit by prepaying the debt if market interest rates decline. In a declining interest rate market, the settlement amount of a typical call option is less than what the fair value of the debt would have been absent the call option. In contrast, a make-whole provision involves settlement at a variable amount typically determined by discounting the debt's remaining contractual cash flows at a specified small spread over the current Treasury rate. That calculation results in a settlement amount significantly above the debt's current fair value based on the issuer's current spread over the current Treasury rate. The make-whole provision contains a premium settlement amount to penalize the debtor for prepaying the debt and to compensate the investor (that is, to approximately make the investor whole) for its being forced to recognize a taxable gain on the settlement of the debt investment. In some debt instruments, the prepayment option under a make-whole provision will not be exercisable during an initial lock-out period. (For example, Private Entity A borrows from Insurance Entity B under a 10-year loan with fixed periodic coupon payments. The spread over the Treasury rate for Entity A at issuance of the debt is 275 basis points. The loan agreement contains a make-whole provision that if Entity A prepays the debt, it will pay Insurance Entity B an amount equal to all the future contractual cash flows discounted at the current Treasury rate plus 50 basis points.) Fixed-rate debt instruments that include a make-whole provision (as previously described) are not considered prepayable under paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), because it involves settlement of the entire contract by the debtor before its stated maturity at an amount greater than (rather than an amount less than) the then fair value of the contract. 5. e Illustrative debt instrument 5. Some variable-rate debt instruments include a call option that permits the debtor to repurchase the debt instrument from the creditor at each interest reset date at an amount equal to par. Although illustrative debt instrument 5, a variable-rate debt instrument, does have a fair value exposure between the date of a change in the contractually specified interest rate and the reset date, a swap would not be an appropriate hedging instrument to hedge that fair value exposure. Thus, a fair value hedge of illustrative debt instrument 5 could not qualify for the shortcut method discussed in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102), which requires the hedging instrument to be an interest rate swap. In cash flow hedges, if the reset provisions always result in the instrument's par amount being equal to its fair value at a reset date, then an option for the debtor to prepay the variable-rate debt instrument at par at that reset date would not be considered prepayable under paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104). However, if the reset provisions can result in the instrument's par amount not being equal to its fair value at those reset dates, then an option for the debtor to prepay the variable-rate debt instrument at par at a reset date would be considered prepayable under that paragraph. (Because the reset provisions typically do not adjust the variable interest rate for changes in credit sector spreads and changes in the debtor's creditworthiness, the variable-rate debt instrument's par amount could seldom be expected to be equal to its fair value at each reset date.) Furthermore, to qualify for cash flow hedge accounting, the hedging relationship must meet the applicable conditions in this Subtopic and the entity designating the hedge (that is, the debtor or creditor) must conclude it is probable that future interest payments will be made during the term of the interest rate swap. If the creditor's counterparty (that is, the debtor) on a recognized variable-rate asset related to the hedged forecasted interest payments can cause that asset to be prepaid, then that creditor would likely be unable to conclude that all the forecasted interest payments on its recognized interest-bearing asset are probable and, thus, the cash flow hedging relationship would not qualify for the shortcut method. (Even though the creditor believes it could immediately obtain a replacement variable-rate asset if prepayment occurs and thus could conclude that the forecasted variable interest inflows are probable, the only hedged forecasted interest inflows that are eligible for application of the shortcut method are those related to a recognized interest-bearing asset at the inception of the hedge.) However, paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) indicates that its criterion that prohibits a prepayment option in the interest-bearing asset or liability does not apply to a hedging relationship if the hedging interest rate swap contains an embedded mirror-image option. In that latter case, if both the prepayment option and the mirror-image option in the swap were exercised, there would be no future hedged interest cash flows related to the recognized interest-bearing asset or liability and no future cash flows under the swap and, thus, the existence of the prepayment option would not preclude the use of the shortcut method. 6. f Illustrative debt instrument 6. Some fixed-rate debt instruments include both a call option as described in illustrative debt instrument 1 and a contingent acceleration clause as described in illustrative debt instrument 2. The same conclusions reached relative to illustrative debt instrument 1 also apply to illustrative debt instrument 6. 7. g Illustrative debt instrument 7. Some debt instruments contain an investor protection clause (which is standard in substantially all debt issued in Europe) that provides that, in the event of a change in tax law that would subject the investor to additional incremental taxation by tax jurisdictions other than those entitled to tax the investor at the time of debt issuance, the coupon interest rate of the debt increases so that the investor's yield, net of the incremental taxation effect, is equal to the investor's yield before the tax law change. The debt issuance also contains an issuer protection clause (which is standard in substantially all debt issued in Europe) that provides that, in the event of a tax law change that triggers an increase in the coupon interest rate, the issuer has the right to call the debt obligation at par. There would be no market for the debt were it not for the prepayment and interest rate adjustment clauses that protect the issuer and investors. Illustrative debt instrument 7 is not considered prepayable under paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) because it meets the exclusion criteria under paragraph [815-20-25-113(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-113). ##### [815-20-55-76](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-76) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4b9728a247ce75f2ad99279034a68fc5b92ccba8e97fd2446485f8d3e19b697c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity is not precluded from applying the shortcut method to a fair value hedging relationship of interest rate risk involving illustrative debt instruments 1 and 6 that are prepayable due to an embedded purchased call option if the hedging interest rate swap contains an embedded mirror-image written call option. ##### [815-20-55-77](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-77) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:49b2af21b2441cc28de1881b57f56feaf3afb169746c3c185c078dd6d8f98917 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition, an entity is not precluded from applying the shortcut method to a fair value hedging relationship of interest rate risk involving illustrative debt instruments 2, 3, 4, and 7 that are not considered prepayable if the hedging interest rate swap does not contain an embedded purchased or written call option related to changes in the designated benchmark interest rate. ##### [815-20-55-78](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-78) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9be2cc8ee5fd906021c698caeb9d1f33c9a1d0f541d2b7d940d5f243fd744c53 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, an entity would likely be precluded from applying the shortcut method to a cash flow hedging relationship of interest rate risk involving illustrative debt instrument 5 because the entity would likely be unable to conclude that all the forecasted interest payments on the recognized interest-bearing asset or liability are probable. ##### [815-20-55-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ecdfae2e21f947827ac1441c88f56108f947ae83d8be066e1b232ed20630c7cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance addresses the application of paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104). It is common to quote the call prices (strike prices) on debt as a percentage of par value. In contrast, the strike prices of options embedded in interest rate swaps are generally quoted as a rate or current yield (the current fixed-rate coupon on a noncallable-nonputtable swap having zero fair value at inception). One means of determining whether these strike prices are the same would be to: 1. a Impute the yield to maturity at a price equal to the call price for a noncallable-nonputtable debt instrument that is otherwise identical to the hedged debt instrument 2. b Compare that yield to the call or put yield embedded in the swap. ##### [815-20-55-79A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:7cdb19f5ee63ac535d38043b997a78bab15e0f5614df8fbe0e873eed1cb934ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In complying with the condition in paragraph [815-20-25-137(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137), comparable does not necessarily mean equal. For example, if the swap's variable rate is the London Interbank Offered Rate (LIBOR) and the borrowing's variable rate is LIBOR plus 2 percent, a 10 percent cap on the swap would be comparable to a 12 percent cap on the borrowing. ##### [815-20-55-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:773d8f0e670bec3cc36e89d3a04c5af96e2084081244ab84755c7ab040937e1a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a forward-starting swap, only the effective term of the receive-variable, pay-fixed interest rate swap (that is, from its effective date through its expiration date) shall be considered in complying with the condition in paragraph [815-20-25-137(f)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137). The period from the swap's inception to the date the swap is effective shall not be considered in complying with the condition in paragraph [815-20-25-137(f)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) because the effective date of a forward-starting swap occurs after the swap's inception. For example, a forward-starting receive-variable, pay-fixed, interest rate swap with a five-year effective term and an effective date commencing one year after the swap's inception would meet the condition in paragraph [815-20-25-137(f)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) if designated as a hedge of a five-year, variable-rate borrowing forecasted to be entered into one year after the swap's inception. ##### [815-20-55-79C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b3ed809ad02e0c18fee8080a35c5b9b7a3243566243c6bfba99e0f04920c6e41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following scenarios illustrate the application of paragraph [815-20-25-3(b)(2)(iv)(02)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). Entity A documents all hedges in accordance with paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), including designating the hedging instrument, hedged item, and method of assessing hedge effectiveness. It performs subsequent prospective and retrospective hedge effectiveness assessments every three months on the last day of the quarter in accordance with paragraph [815-20-25-79(a) through (b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79). In the following scenarios, assume that the next quarterly effectiveness assessment date is March 31, 20X1. Entity A also does not dedesignate the hedging relationships in the following scenarios. ##### [815-20-55-79D](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ea22d5e02a8f67a8283be2cbc08d31725abb0716ef238c238441cce0f1d45891 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A enters into a cash flow hedging relationship on January 15, 20X1, in which the hedged item is a forecasted transaction expected to occur in one year. Because the hedged item and hedging instrument do not expire, are not sold, or do not terminate before the quarterly effectiveness testing date, Entity A may perform the initial prospective quantitative effectiveness assessment at any time after hedge designation but no later than March 31, 20X1. ##### [815-20-55-79E](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79E) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:619010afeae7b7742fdbb2ad76255a1db6f0e570a247474962b4df9c32e38070 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A enters into a cash flow hedging relationship on March 28, 20X1, in which the hedged item is a forecasted transaction expected to occur in one year. Entity A must perform the initial prospective quantitative effectiveness assessment no later than March 31, 20X1. ##### [815-20-55-79F](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79F) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:588d28c257554b74d70128773a4fead17aca4ae82865d796aa8f6f1362ac0393 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 15, 20X1, Entity A enters into a cash flow hedging relationship in which the hedged forecasted purchase of a nonfinancial asset is expected to occur in two months. The purchase occurs as forecasted on March 15, 20X1. Entity A must complete the initial prospective effectiveness assessment at any time after hedge designation but no later than March 15, 20X1, when the forecasted purchase occurs. ##### [815-20-55-79G](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79G) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:402fb54d5c67adc2eedc7241c3197f47a514ea5ace036d8edcdd262430c707c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity should use judgment in determining whether it can reasonably support performing assessments of effectiveness after hedge inception on a qualitative basis. That judgment should include careful consideration of the following factors: 1. a Results of the quantitative assessment of effectiveness performed for the hedging relationship. 2. b Alignment of the critical terms of the hedging relationship. If one or more of the critical terms of the hedging instrument and the hedged item are not aligned, an entity should consider whether changes in market conditions may cause the changes in fair values or cash flows of the hedging instrument and hedged item or hedged forecasted transaction attributable to the hedged risk to diverge as a result of those differences in terms. 1. 1 In cases in which the underlyings of the hedged item and hedging instrument are different, an entity should consider the extent and consistency of the correlation exhibited between the changes in the underlyings of the hedged item and hedging instrument. 1. i This may inform the entity about whether expected changes in market conditions could cause the changes in fair values or cash flows of the hedging instrument and the hedged item or hedged forecasted transaction attributable to the hedged risk to diverge. Particularly in the context of reverting to qualitative assessments of hedge effectiveness after being required to perform a quantitative assessment (as discussed in paragraph [815-20-35-2D](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D)), this may inform an entity about whether there is a reasonable expectation that the hedging relationship is expected to remain stable or whether that divergence is expected to continue or recur in the future. 2. ii A specific event or circumstance may cause a temporary disruption to the market that results in an entity concluding that the facts and circumstances of the hedging relationship have changed such that it no longer can assert qualitatively that the hedging relationship was and continues to be highly effective. In those instances, if the results of the quantitative assessment of effectiveness do not significantly diverge from the results of the initial assessment of effectiveness, that market disruption should not prevent the entity from returning to qualitative testing in subsequent periods. If the results of the quantitative assessment of effectiveness do significantly diverge from the results of the initial assessment of effectiveness, the entity should continually monitor whether the temporary market disruption has been resolved when determining whether to return to qualitative testing in subsequent periods. ##### [815-20-55-79H](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79H) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3dd2c351e4dbaa11e91b3217123ad32136337452441bc9b71ab5663955dd207b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the following scenarios, assume that the entity is required to perform a quantitative assessment of effectiveness at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). For each scenario, a discussion of whether the entity could reasonably support performing qualitative assessments of effectiveness is included in paragraphs [815-20-55-79L through 55-79N](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79L) . ##### [815-20-55-79I](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79I) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b44271b3c26ee6f85366c3e9b5361ea81ba9a269ed075db9eb89c08319f49754 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors are present in the hedging relationship: 1. a The results of the initial or most recent quantitative assessment of effectiveness performed indicate that the hedging relationship is close to achieving perfect offset. 2. b All critical terms of the hedging relationship match except for the underlyings of the hedged item and hedging instrument. 1. 1 The changes in the underlyings of the hedged item and hedging instrument have been consistently highly correlated such that expected changes in market conditions are not anticipated to prevent the hedging relationship from achieving highly effective offset. ##### [815-20-55-79J](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79J) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:579e1f305b21bb3131a1cb4f4385792b5139ab91c5b751a9901605b9a87db501 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors are present in the hedging relationship: 1. a The results of the initial or most recent quantitative assessment of effectiveness performed indicate that the hedging relationship is close to failing the effectiveness test. 2. b All critical terms of the hedging relationship match except for the underlyings of the hedged item and the hedging instrument. 1. 1 The changes in the underlyings of the hedged item and the hedging instrument have not been consistently highly correlated such that expected changes in market conditions could prevent the hedging relationship from achieving highly effective offset. ##### [815-20-55-79K](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79K) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9b239e3540e0be4a8efbe40a7fc0b2d99a06395da8ba1f0cc8e3d0d78ecb2eec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following factors are present in the hedging relationship: 1. a The results of the initial or most recent quantitative assessment of effectiveness performed indicate that the hedging relationship is neither close to achieving perfect offset nor close to failing the effectiveness test. 2. b All critical terms of the hedging relationship match except for the underlyings of the hedged item and the hedging instrument. 1. 1 The changes in the underlyings of the hedged item and the hedging instrument have not been consistently highly correlated such that expected changes in market conditions could prevent the hedging relationship from achieving highly effective offset. ##### [815-20-55-79L](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79L) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b6fb0a35bc83921730d46075e4193fabb489fe3a91ba0e0316c75b95ab804b1f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In Scenario A, the entity could reasonably support performing qualitative assessments of effectiveness. The quantitative assessment of effectiveness was close to achieving perfect offset and past observations of changes in the underlyings of the hedged item and hedging instrument (that is, the only critical term that did not match) consistently exhibited high correlation. This indicates that the results of subsequent assessments of effectiveness may not significantly differ from those observed from the assessment of effectiveness performed at hedge inception. ##### [815-20-55-79M](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79M) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:6fa3c3d3e0ccfc831cda35013285c40422998f1cc83134a9275cd95c3990049a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In Scenario B, the entity could not reasonably support performing qualitative assessments of effectiveness. The lack of consistent high correlation exhibited between the changes in the underlyings of the hedged item and the hedging instrument could prevent the entity from concluding that the results of subsequent assessments of effectiveness will be similar to the results observed from the initial assessment of effectiveness. Had the changes in underlyings of the hedged item and the hedging instrument been consistently highly correlated, the entity may conclude that it is still unable to reasonably support performing subsequent assessments of effectiveness on a qualitative basis. Because the hedging relationship is close to failing its quantitative assessment, minimal changes in the relationship between the hedged item and hedging instrument could result in the hedging relationship not being highly effective. ##### [815-20-55-79N](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79N) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4ae08c2246c2252cc977f7ca081ff2189574f298bf1bd41316d14789c8d1d53e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In Scenario C, the entity could not reasonably support performing qualitative assessments of effectiveness. Although this hedging relationship is not close to failing the quantitative assessment of effectiveness as in Scenario B, the lack of consistent high correlation exhibited between the changes in the underlyings of the hedged item and the hedging instrument prevent the entity from concluding that the results of subsequent assessments of effectiveness will be similar to the results observed from the initial or most recent quantitative assessment of effectiveness. Had the changes in value of the underlyings of the hedged item and the hedging instrument consistently been highly correlated, the entity may conclude that it could reasonably support performing subsequent assessments of effectiveness on a qualitative basis. ##### [815-20-55-79O](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79O) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:2e863b28ce1b7d04110e43a893a42519b3087bb650de020ff7a519d24ebc0877 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following scenarios illustrate the application of paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) . ##### [815-20-55-79P](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79P) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:fba0d9fec252ef187124a2034a9e30769d2b02aa9954fc43411a0e80ac16fb21 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B expects to purchase 10,000 metric tons of cottonseed meal throughout April 20X3 based on the spot price of the cottonseed meal index on the respective date of each purchase. Entity B wants to hedge the variability in cash flows attributable to changes in the cottonseed meal index on the price that it will pay for the cottonseed meal. It enters into a forward contract on August 24, 20X1, with a notional of 10,000 metric tons, a maturity of April 1, 20X3, and an underlying of the soybean meal index because no market exists for derivatives indexed to the cottonseed meal index. Concurrent with the execution of the forward, Entity B designates the forward as the hedging instrument in a hedging relationship in which the hedged item is documented as the forecasted purchases of the first 10,000 metric tons of cottonseed meal expected to be purchased during April 20X3 and the hedged risk is documented as the variability in cash flows attributable to changes in the contractually specified cottonseed meal index in the not-yet-existing contract. On August 24, 20X1, Entity B determines that all requirements for cash flow hedge accounting are met and that the requirements of paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) will be met in the contract once executed in accordance with paragraph [815-20-25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22B). Entity B also will assess whether the criteria in [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) are met in the contract when it is executed. 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)Entity B expects to purchase 10,000 metric tons of cottonseed meal throughout April 20X3 based on the spot price of the cottonseed meal index on the respective date of each purchase. Entity B wants to hedge the variability in cash flows attributable to changes in the cottonseed meal index on the price that it will pay for the cottonseed meal. It enters into a forward contract on August 24, 20X1, with a notional of 10,000 metric tons, a maturity of April 1, 20X3, and an underlying of the soybean meal index because no market exists for derivatives indexed to the cottonseed meal index. Concurrent with the execution of the forward, Entity B designates the forward as the hedging instrument in a hedging relationship in which the hedged item is documented as the forecasted purchases of the first 10,000 metric tons of cottonseed meal expected to be purchased during April 20X3 and the hedged risk is documented as the variability in cash flows attributable to changes in the cottonseed meal index. On August 24, 20X1, Entity B determines that all requirements for cash flow hedge accounting are met, including the relevant conditions in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) on designating the variability in cash flows attributable to changes in a component of the forecasted purchase price of a nonfinancial asset as the hedged risk. ##### [815-20-55-79Q](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79Q) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3bfc04ba2267ace5f845b1f705e1f21b84ec4df984b9e3693ffd555369aa2b3b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the hedged risk and forward contract are based on different indexes, the hedging relationship does not qualify for one of the exemptions in paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). Entity B performs an initial quantitative hedge effectiveness assessment and determines that the hedging instrument is highly effective at achieving offsetting cash flows associated with the hedged item attributable to the hedged risk. In Entity B's hedge documentation, it elects to perform subsequent assessments of hedge effectiveness on a qualitative basis. It makes this election based on the following factors: 1. a The results of the quantitative effectiveness assessment performed at hedge inception indicate that the hedging relationship is close to achieving perfect offset. 2. b Changes in the value of the cottonseed meal index have been consistently highly correlated with changes in value of the soybean meal index such that expected changes in market conditions are not anticipated to prevent the hedging relationship from achieving highly effective offset. 3. c Although the underlyings of the hedging instrument and hedged item do not match, the notional amount of the derivative and the expected quantity to be purchased do match. Based on the quantitative effectiveness assessment, Entity B also determined that the difference in timing between the maturity date of the derivative and the dates on which the group of forecasted purchases is expected to occur is insignificant. ##### [815-20-55-79R](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79R) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1e2d0fa8951dfd30c0b1082d426a32510a93d4a987425af7b3f3f05f7637411a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During the fourth quarter of 20X1, a storm damages the soybean harvest, which leads to a shortage in soybean meal supply and a sharp increase in the price of soybean meal based on the soybean meal index. The cottonseed meal index has not experienced a similar increase because cotton harvests were unaffected by the storm that damaged the soybean harvest. Because the increase in the soybean meal index is not reflected in the cottonseed meal index, Entity B concludes that a change in facts and circumstance has occurred that prevents a qualitative assertion in subsequent periods that the hedging relationship continues to be highly effective at achieving offsetting cash flows. Thus, on the next subsequent effectiveness assessment date (December 31, 20X1), the company begins performing quantitative assessments of hedge effectiveness based on the method used to perform the initial prospective assessment of effectiveness. In the effectiveness assessment performed on December 31, 20X1, Entity B determines that the hedging relationship remains highly effective but that it is not close to achieving perfect offset. 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)During the fourth quarter of 20X1, a storm damages the soybean harvest, which leads to a shortage in soybean meal supply and a sharp increase in the price of soybean meal based on the soybean meal index. The cottonseed meal index has not experienced a similar increase because cotton harvests were unaffected by the storm that damaged the soybean harvest. Because the increase in the soybean meal index is not reflected in the cottonseed meal index, Entity B concludes that a change in facts and circumstances has occurred that prevents a qualitative assertion in subsequent periods that the hedging relationship continues to be highly effective at achieving offsetting cash flows. Thus, on the next subsequent effectiveness assessment date (December 31, 20X1), the company begins performing quantitative assessments of hedge effectiveness based on the method used to perform the initial prospective assessment of effectiveness. In the effectiveness assessment performed on December 31, 20X1, Entity B determines that the hedging relationship remains highly effective but that it is not close to achieving perfect offset. ##### [815-20-55-79S](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79S) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4a901a79cd0310d27aa245d3e9c01aa6fa3ae55e17276aff2aecadfa12fdfe4a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B returns to assessing effectiveness qualitatively as of June 30, 20X2, because the evaluation of the following criteria leads to the conclusion that high effectiveness can be asserted prospectively on a qualitative basis: 1. a Entity B determines that the event that caused the soybean meal index and cottonseed meal index to experience a lack of correlation was temporary, that it was an isolated weather event, and the effect of the weather event has passed. 2. b The changes in value of the soybean meal index and cottonseed meal index reverted to levels of correlation that were consistent with those before the storm. 3. c The results of the June 30, 20X2 quantitative assessment of effectiveness are in line with the results of the quantitative assessment of effectiveness performed at hedge inception. 4. d No further disruptions in supply are expected. ##### [815-20-55-79T](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79T) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8badc85871ec6e2c67738d07a423006d777f3eda3e46f2e0b18690bea5a44417 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On August 17, 20X1, Entity C issues at par a $100 million 5-year fixed-rate noncallable debt instrument with an annual 8 percent interest coupon. On that date, Entity C enters into a 5-year interest rate swap with Financial Institution D and designates it as the hedging instrument in a fair value hedge of the LIBOR interest rate risk of the $100 million liability. Under the terms of the interest rate swap, Entity C will receive fixed interest at 6 percent and pay variable interest at LIBOR based on a notional amount of $100 million. The variable leg of the interest rate swap resets at the end of each quarter for the interest payment that is due at the end of the following quarter. ##### [815-20-55-79U](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79U) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a2939becaa107a01d7043f93abcbca7eb770cb268701b534fad327b13240e786 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity C performs the initial quantitative and first subsequent hedge effectiveness assessments on September 30 (the entity's first quarterly testing date after hedge inception) and determines that the hedging relationship is highly effective at achieving offsetting changes in fair value attributable to interest rate risk. Entity C also elects at hedge inception to subsequently assess hedge effectiveness on a qualitative basis and documents how it would carry out that qualitative assessment. In its quarterly effectiveness assessment on December 31, the entity asserts that facts and circumstances related to the hedging relationship have not changed and the hedging relationship was and continues to be highly effective. ##### [815-20-55-79V](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79V) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:0dc3d29df3cdab54cb96777d411acb83b6cbc629ff6a8c781bc2fc660ee0dccf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, in the first quarter of 20X2, Financial Institution D's risk of default significantly increases, which affects the valuation of the interest rate swap with Entity C. Entity C notes that it no longer can qualitatively assert that the hedging relationship was and continues to be highly effective at achieving offsetting changes in fair value attributable to changes in benchmark interest rates. Thus, on the next subsequent effectiveness assessment date (March 31, 20X2), Entity C begins performing quantitative assessments of effectiveness using the method documented at hedge inception. In subsequent periods, Entity C does not return to qualitative effectiveness assessments because it cannot reasonably support an expectation of high effectiveness on a qualitative basis for the following reasons: 1. a The significant risk of default of Financial Institution D has not reversed and is not expected to be temporary. 2. b The results of quantitative effectiveness tests performed indicate that the hedging relationship is close to no longer being highly effective. ##### [815-20-55-79W](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79W) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:86d3268024f26e3fa609b3e2e13b22a85cf5a66f5276bcebe4bf40d730e57001 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-45-1A](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1A) requires an entity to present the change in the fair value of the hedging instrument included in the assessment of hedge effectiveness and the amount excluded from the assessment of hedge effectiveness in the same income statement line item that is used to present the earnings effect of the hedged item. The following scenarios include implementation guidance on the meaning of the phrase _the same income statement line item that is used to present the earnings effect of the hedged item_. ##### [815-20-55-79X](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79X) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bf950b2ff665575c9fa5cc99bd5ed55a9fc6316935438ad7aca277f91f27157b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A designates a fair value hedge of interest rate risk in which the hedged item is a portfolio of fixed-rate loans. The derivative designated as the hedging instrument is a receive-floating-rate, pay-fixed-rate interest rate swap. In this scenario, Entity A's objective is to convert the interest cash flows on the portfolio of fixed-rate loans to floating-rate. ##### [815-20-55-79Y](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79Y) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:eff78f01a636e219b3a68866e523ad6a2ca681ed2f4daec8731f5e84eb02ee0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The interest rate swap is a highly effective hedge of the interest rate risk of the portfolio of fixed-rate loans. Therefore, the change in the fair value of the interest rate swap should be presented in the same income statement line item used to present the earnings effect of the hedged item. Before applying hedge accounting, the earnings effect of the hedged item (that is, the interest accruals) is presented in an interest income line item. Therefore, Entity A should present all changes in the fair value of the hedging instrument (that is, the interest accruals and all other changes in fair value) in the same interest income line item in the income statement. ##### [815-20-55-79Z](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79Z) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c8ba10166c6be28c5970cd657138569c66430df8f322407d144bd2abf204397c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B designates a fair value hedge of foreign exchange risk in which the hedged item is an issued variable-rate debt instrument denominated in a currency other than Entity B's functional currency. The derivative designated as the hedging instrument is a receive-floating-rate (in foreign currency), pay-floating-rate (in functional currency) cross-currency swap that requires an initial and final exchange of notional amounts. In this scenario, Entity B's objective is to convert the cash flows of the debt instrument (both interest cash flows and the principal cash flow) from a foreign currency to Entity B's functional currency. ##### [815-20-55-79AA](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79AA) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ead2ee7314c507a2f093b7414697522ae45d0c89f4180ce7841d1a183193e211 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The currency swap is a highly effective hedge of the currency risk of both the interest cash flows and the principal cash flows of the debt instrument. Therefore, the change in fair value of the currency swap should be presented in the same income statement line item(s) used to present the earnings effects of the hedged item. Before applying hedge accounting, Entity B presents the earnings effect associated with the hedged item in two income statement line items. That is, interest accruals are presented in an interest expense line item, and the spot remeasurement of the foreign-currency-denominated debt under Topic 830 on foreign currency matters is presented in a foreign currency transaction gain or loss line item. Therefore, in this scenario, because the hedging instrument is highly effective at offsetting changes in fair values associated with the hedged item that are reported in more than one income statement line item, the effects of the hedging instrument also should be presented in those corresponding income statement line items. Entity B should present all changes in the fair value of the hedging instrument (that is, the interest accruals and all other changes in fair value) in the same interest expense line item that is used to present the earnings effect of the hedged item before applying hedge accounting, except for the change in the fair value of the hedging instrument that the entity determines should be presented in the same foreign currency transaction gain or loss line item used to present the spot remeasurement of the hedged item before applying hedge accounting. ##### [815-20-55-79AB](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79AB) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:e68263fc1a3ea832e89ec03e4b6139e1fd3377ba48279cc3930c08436509a860 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity C designates a fair value hedge of interest rate risk and foreign currency risk in which the hedged item is a foreign-currency-denominated fixed-rate available-for-sale debt security. The derivative designated as the hedging instrument is a pay-fixed-rate (in foreign currency), receive-floating-rate (in functional currency) cross-currency interest rate swap. In this scenario, Entity C's objective is to convert the interest cash flows of the fixed-rate security to floating-rate and also to convert the cash flows of the security (both interest cash flows and the principal cash flow) from a foreign currency to Entity C's functional currency. ##### [815-20-55-79AC](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79AC) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4d2d6667990713f386c41d469e75e89de93cfc8f82f57b27dae3eb06e803d046 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The cross-currency interest rate swap is a highly effective hedge of both the interest rate risk and foreign currency risk of the available-for-sale debt security. Therefore, the change in fair value of the cross-currency interest rate swap should be presented in the same income statement line item or items used to present the earnings effect of the hedged item. Before applying hedge accounting, Entity C recognizes the earnings effect of the hedged item (that is, interest accruals on the available-for-sale debt security) in an interest income line item in the income statement and recognizes all other changes in fair value in other comprehensive income in accordance with paragraph [320-10-35-1(b)](https://asc.understandingaccounting.org/asc/320/10/#320-10-35-1). Entity C should present changes in fair value of the hedging instrument (that is, the interest accruals and all other changes in fair value) in the same income statement line item used to present the earnings effect of the hedged item. However, if Entity C's policy is to present the effect of foreign exchange rate changes on the fair value of the security that are recognized in earnings after applying hedge accounting in accordance with paragraph [815-25-35-6](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-6) in a different income statement line item (consistent with its presentation policies when reflecting other foreign exchange rate changes), then the related changes in fair value of the hedging instrument also should be presented in that income statement line item. ##### [815-20-55-79AD](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79AD) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b963a7fc76ade3a98e174fa7a5706c1be8c174a358ca6d742ca1f274f2e67cae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This scenario illustrates that a single hedging instrument (a cross-currency interest rate swap) may be highly effective at offsetting changes in fair values or cash flows associated with the hedged item in which the earnings effect of the hedged item is presented in more than one income statement line item. If a hedging instrument is highly effective at offsetting changes in fair values or cash flows of the hedged item and the earnings effect of the hedged item is presented in more than one income statement line item, then the earnings effects of the hedging instrument also should be presented in those corresponding income statement line item(s). #### Illustrations ##### [815-20-55-80](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-80) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5deca5e5b4ad1252539dbb32adbc3cc2d70f173ea201d3bd3a4dd48b8d11972e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the requirement in paragraph [815-20-25-3(d)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) for specific identification of the hedged transaction. Entity A determines with a high degree of probability that it will issue $5,000,000 of fixed-rate bonds with a 5-year maturity sometime during the next 6 months, but it cannot predict exactly when the debt issuance will occur. That situation might occur, for example, if the funds from the debt issuance are needed to finance a major project to which Entity A is already committed but the precise timing of which has not yet been determined. To qualify for cash flow hedge accounting, Entity A might identify the hedged forecasted transaction as, for example, the first issuance of five-year, fixed-rate bonds that occurs during the next six months. ##### [815-20-55-80A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-80A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:36ae51c64c878d35b0762bd56abedec0adca07a3fdec5cbc5eb5c831b6525693 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the documentation requirements in paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) when the critical terms of the hedging instrument and hedged forecasted transaction match in accordance with paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) . On January 1, 20X1, Entity A, a U.S. dollar (USD) functional currency entity, executes a forward contract to hedge a portion of its exposure to Canadian Dollar- (CAD-) denominated forecasted sales expected to occur in December 20X1. Entity A determines that all the critical terms of the hedging instrument and hedged forecasted transaction match. It documents the hedging relationship concurrently with the execution of the forward contract in accordance with paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) as follows: 1. a Risk management objective: To hedge against movements in the USD/CAD exchange rate that will affect the USD value of future CAD sales. 2. b Hedged forecasted transaction: The first CAD 500,000 sales in December 20X1. 3. c Hedging instrument: Foreign exchange forward contract to sell CAD 500,000 and receive USD 400,000 on December 31, 20X1. The fair value of the forward contract at hedge inception is zero. 4. d Method of assessing hedge effectiveness: Entity A will assess the effectiveness on a qualitative basis at hedge inception. The critical terms of the hedging instrument and hedged forecasted transaction can be considered to match because the notional amounts and underlyings of the hedging instrument and hedged forecasted transaction are the same and the forecasted sales are expected to occur in the same fiscal month as the maturity date of the hedging instrument. Therefore, the hedge is expected to be perfectly effective. Subsequent assessments of effectiveness will be performed by verifying and documenting whether the critical terms of the hedging instrument and hedged forecasted transaction have changed during the period in review and whether it remains probable that the counterparty to the hedged item and hedged forecasted transactions will not default. If there are no such changes in critical terms or counterparty credit risk, Entity A will continue to conclude that the hedging relationship is perfectly effective. ##### [815-20-55-81](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-81) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:4c3dc7ba3b44a6c254f43134c38d25527d718901012297338ee76b286b98a655 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12). ##### [815-20-55-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-82) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:defde486caab692bc9da2b7f6320899949d6f9a1f09519a72b19a25cb1dd5773 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that issues $100 million of fixed-rate debt may wish to hedge 50 percent of its fair value exposure to interest rate risk, as permitted by paragraph [815-20-25-12(b)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12). To accomplish that, the entity could enter into an interest rate swap with a notional amount of $50 million. The paragraph [815-20-25-104(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) criterion is satisfied because the entity has designated as a fair value hedge 50 percent of the contractual principal amount as the hedged item and has entered into an interest rate swap with a notional amount that matches the hedged principal amount. ##### [815-20-55-83](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-83) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d5478bdfd7a4b4785da94d16e93cef815ea7ffc64811efffa7afd9666b01843c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If $100 million of fixed-rate debt were issued in increments of $1,000 individual bonds, the entity could aggregate 50,000 of those individual bonds as a portfolio to equal the notional amount of the swap, as permitted by paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) (for the purposes of this Example, it is assumed that the hedge satisfies the portfolio requirements of that paragraph). ##### [815-20-55-84](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-84) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5bd89fde55ceed27d967c0c6abf878dd91db1f901c40c7528b3619e092151fff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) and the definition of firm commitment in relation to long-term supply contracts with embedded price caps or floors. ##### [815-20-55-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-85) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a684dbbc5fdfb98f131b7a4258f248a4de6e3eb4caa49aa95420e8509f4579b6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A enters into a long-term supply contract with a customer to sell a specified amount of a certain material. The selling price is the current monthly average list price for the quantity delivered each month but not to exceed $15 per pound. The current list price at the contract signing date is $12 per pound. The contract can be settled only by physical delivery. The contract also includes a penalty provision that is sufficiently large to make performance probable. The customer is not required to make an up-front cash payment for the written option (that is, the price cap) in the supply contract. Consequently, the supply contract is neither a recognized asset nor a recognized liability at inception. ##### [815-20-55-86](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-86) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d5b18039741d6f89b4bd8e74097b804f44f98cc54677680db58089a0a2771586 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The supply contract in its entirety does not meet the definition of a derivative instrument due to the absence of a net settlement characteristic—that is, the contract does not permit or require net settlement (see guidance beginning in paragraph [815-10-15-100](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-100)), there is no market mechanism (see guidance beginning in paragraph [815-10-15-110](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-110)), and it does not require delivery of an asset that is [readily convertible to cash](https://asc.understandingaccounting.org/glossary/r/#readily-convertible-to-cash "Assets that are readily convertible to cash have both of the following: Interchangeable (fungible) units Quoted prices available in an active market that can rapidly absorb the quantity held by the entity without significantly affecting the price. (Based on paragraph 83(a) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9Assets that are readily convertible to cash have both of the following: Interchangeable (fungible) units Quoted prices available in an active market that can rapidly absorb the quantity held by the entity without significantly affecting the price.") (see guidance beginning in paragraph [815-10-15-119](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-119)). Pursuant to the guidance in paragraph [815-15-25-19](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-19), the embedded cap on the selling price is an option that does not warrant separate accounting under Subtopic 815-15 because it is clearly and closely related to the host supply contract. In addition, because the supply contract is not remeasured with changes in fair value reported currently in earnings, it meets the criteria in paragraph [815-20-25-43(c)(3)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43) to qualify as a hedged item in a fair value hedge. ##### [815-20-55-87](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-87) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:34ac1a5fb5f22424ff7e9134fce08c89121c81bbe1ff965ed3ba3996cae039cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A wishes to enter into a transaction to hedge the risk of changes in the fair value of the embedded written price cap in the supply contract. Accordingly, it purchases a cash-settled call option with a strike price of $15 per pound and a notional amount equal to the quantity specified in the supply contract. In accordance with the guidance in paragraph [815-20-25-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12), a supply contract for which the contract price is fixed only under certain circumstances (such as when market prices are above an embedded price cap) meets the definition of a firm commitment for purposes of designating the hedged item in a fair value hedge. Therefore, if the selling price in a supply contract is subject to a cap, a floor, or both, either party to the contract is eligible to apply fair value hedge accounting in a hedging relationship to hedge the fair value exposure of the cap or floor. For the range of monthly average list prices above $15 per pound, the contract has a fixed $15 per pound price. Thus, Entity A may designate the written cap embedded in the supply contract as the hedged item in a fair value hedging relationship provided the other criteria for a fair value hedge are met. The embedded written cap in this Example is a specific portion of the contract that is subject to the risk of changes in fair value due to changes in the list price of the underlying materials. Because it is not accounted for separately from the supply contract, the embedded written cap may be designated as the hedged item in a fair value hedge. Paragraph [815-20-25-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) allows a nonbifurcated call option that is embedded in a supply contract to be the hedged item in a fair value hedge regardless of whether that supply contract is a recognized asset or liability or an unrecognized firm commitment. ##### [815-20-55-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-88) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f7769c863fdbdde2348ff98c8b78adb0b2619495e636ab1a0cdc3d7929029e91 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the implications of two different approaches to designation of variable interest payments on a group of variable-rate, interest-bearing loans: 1. a Designation based on first payments received (Case A) 2. b Designation based on a specific group of individual loans (Case B). 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)The following Cases illustrate the implications of different approaches to designation of variable interest payments on a group of variable-rate, interest-bearing loans: 1. a Designation based on a single interest rate index under the first-payments-received technique (Case A) 2. b Designation based on a specific group of individual loans (Case B) 3. c Designation based on multiple interest rate indexes under the first-payments-received technique (Case C). ##### [815-20-55-89](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-89) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:828a2ebbbabdda3b59e8c20aed8614e528a8a2590a028c61c5a66f9cf302fe3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For Cases A and B, assume Entity A and Entity B both make to their respective customers London Interbank Offered Rate- (LIBOR-) indexed variable-rate loans for which interest payments are due at the end of each calendar quarter, and the LIBOR-based interest rate resets at the end of each quarter for the interest payment that is due at the end of the following quarter. Both entities determine that they will each always have at least $100 million of those LIBOR-indexed variable-rate loans outstanding throughout the next 3 years, even though the composition of those loans will likely change to some degree due to prepayments, loan sales, and potential defaults. 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 Cases A, B, and C, assume that Entities A, B, and C each make to their respective customers Secured Overnight Financing Rate (SOFR-) indexed variable-rate loans for which monthly interest payments are based on 30-Day Average SOFR (in arrears) (that is, daily compounded average of SOFR during the past 30 days). Entity C also originates SOFR-indexed variable-rate loans for which interest payments are based on both 1-Month Term SOFR (that is, 1-month forward-looking SOFR) and 30-Day Average Effective Federal Funds Rate (in arrears) (that is, daily compounded average Effective Federal Funds Rate during the past 30 days). All loans made by Entities A, B, and C have interest rate floors that range from 0 percent to 0.5 percent and reset and payment dates that occur over the course of a month. ##### [815-20-55-89A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-89A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:7e66bc560019d7c598b59749184161aa21e191b6d39b2b8bbbecb05578140b07 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)Both Entities A and B determine that they will each always have at least $100 million of 30-Day Average SOFR-indexed (in arrears) variable-rate loans outstanding throughout the next 3 years, even though the composition of those loans will likely change to some degree due to prepayments, loan sales, and potential defaults. Entity C determines that it will always have at least $100 million of variable-rate loans outstanding indexed to any combination of 30-Day Average SOFR (in arrears), 1-Month Term SOFR, and 30-Day Average Effective Federal Funds Rate (in arrears) throughout the next 3 years. ##### [815-20-55-89B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-89B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8a5b4b51951820171aceaf5cab55bdfcb89e0bda8ad7fe6129443f0d4c9e16b7 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)Entities A, B, and C each execute a 3-year, receive-fixed, pay-variable (30-Day Average SOFR \[in arrears\]) interest rate swap with a $100 million notional amount that settles at the end of each calendar month. Each interest rate swap does not include a floor and has a fair value of $0 at inception. ##### [815-20-55-90](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-90) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d15b19a302b82d3a338fa9b08a80171796c9ccf9adb4c2a9e09e2750eeb33d18 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example does not address cash flow hedging relationships in which the hedged risk is the risk of overall changes in the hedged cash flows related to an asset or liability, as discussed in paragraph [815-20-25-15(j)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15). ##### [815-20-55-91](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-91) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:47a1737dc29c44f680fecd9af612ea9c073ebc06f199df8f8fd2cdf02317853e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, Entity A wishes to hedge its interest rate exposure to changes in the quarterly interest receipts on $100 million principal of those LIBOR-indexed variable-rate loans by entering into a 3-year interest rate swap that provides for quarterly net settlements based on Entity A receiving a fixed interest rate on a $100 million notional amount and paying a variable LIBOR-based rate on a $100 million notional amount. 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 815-20-55-91 will be amended upon transition, together with its heading:
• • > Case A: Designation Based on a Single Interest Rate Index under the First-Payments-Received Technique
In this Case, Entity A designates the 30-Day Average SOFR (in arrears) interest rate swap (described in paragraph [815-20-55-89B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-89B)) as hedging the cash flow variability attributable to changes in the first interest payments received during each month for the next 3 years on $100 million principal of 30-Day Average SOFR-indexed (in arrears) variable-rate loans. ##### [815-20-55-92](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-92) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:50c91fc365339a60c4808a179d5a321b6d513aa4beed2c3dbe8e96f64820850f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a cash flow hedge of interest rate risk, Entity A may identify the hedged forecasted transactions as the first LIBOR-based interest payments received by Entity A during each 4-week period that begins 1 week before each quarterly due date for the next 3 years that, in the aggregate for each quarter, are payments on $100 million principal of its then existing LIBOR-indexed variable-rate loans. The LIBOR-based interest payments received by Entity A after it has received payments on $100 million aggregate principal would be unhedged interest payments for that quarter. 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)Any 30-Day Average SOFR-indexed (in arrears) interest payments received by Entity A after it has received payments on $100 million aggregate principal would be unhedged interest payments for that period. ##### [815-20-55-93](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-93) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3b6c5968fec700be5b5c4a5ec7b6d8f6a1a9f1525202cdcacee41a91eff80834 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedged forecasted transactions for Entity A in this Case are described with sufficient specificity so that when a transaction occurs, it is clear whether that transaction is or is not the hedged transaction. ##### [815-20-55-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-94) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d7cc86b1d233dce61341a6bcf9f9e19c6871f85f7600aeb2f0a80b1a3239a013 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because Entity A has designated the hedging relationship as hedging the risk of changes attributable to changes in the LIBOR interest rate in Entity A's first LIBOR-based interest payments received, any prepayment, sale, or credit difficulties related to an individual LIBOR-indexed variable-rate loan would not affect the designated hedging relationship. 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)Because Entity A has designated the hedging relationship as hedging the risk of changes in the 30-Day Average SOFR (in arrears) interest rate in Entity A's first 30-Day Average SOFR (in arrears) interest payments received, any prepayment, sale, or credit difficulties related to an individual 30-Day Average SOFR-indexed (in arrears) variable-rate loan would not necessarily affect the designated hedging relationship. ##### [815-20-55-95](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-95) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5e4a569fa33cb7c8ab84f35c7152c0b78e085df6365a58a0a388e8dde9e6dfb4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Provided Entity A determines it is probable that it will continue to receive interest payments on at least $100 million principal of its then existing LIBOR-indexed variable-rate loans, Entity A can conclude that the hedged forecasted transactions in the documented cash flow hedging relationships are probable of occurring. 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)Provided Entity A determines it is probable that it will continue to receive interest payments on at least $100 million principal of its then existing 30-Day Average SOFR-indexed (in arrears) variable-rate loans, Entity A can conclude that the hedged forecasted transactions in the documented cash flow hedging relationships are probable of occurring. ##### [815-20-55-96](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-96) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:555b82ed543d7c9476713f7f5b889f48820cf7b2b48749021c848d530818cc82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may not assume perfect effectiveness in such a hedging relationship as described in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) because the hedging relationship does not involve hedging the interest payments related to the same recognized interest-bearing loan throughout the life of the hedging relationship. Consequently, at a minimum, Entity A must consider the timing of the hedged cash flows vis-à-vis the swap's cash flows when assessing effectiveness. ##### [815-20-55-96A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-96A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a7e58490c92d863b91dffe65cfdd3ad6faa1e77ec27d904f9c6617568c6fdb55 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)Entity A elects to assess similar risk exposure for the group of forecasted transactions by determining that the designated hedging instrument is highly effective against each hedged risk in the group in accordance with the method outlined in paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A) and determines that the similar risk exposure requirement is met. Entity A also utilizes that same assessment to satisfy the initial prospective effectiveness assessment. In performing that assessment, Entity A considers the differences between the individual forecasted transactions in the group and the contractual terms of the hedging instrument. Those differences include, for example, payment dates, reset dates, and interest rate floors. ##### [815-20-55-97](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-97) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5c7c8bdeafd81cb7c0b9b43aa741a2b060945fc21ef82010bb4a4dfdebe9b4f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, Entity B wishes to hedge its interest rate exposure to changes in the quarterly interest receipts on $100 million principal of those LIBOR-indexed variable-rate loans by entering into a 3-year interest rate swap that provides for quarterly net settlements based on Entity B receiving a fixed interest rate on a $100 million notional amount and paying a variable LIBOR-based rate on a $100 million notional amount. Entity B initially designates cash flow hedging relationships of interest rate risk and identifies as the related hedged forecasted transactions each of the variable interest receipts on a specified group of individual LIBOR-indexed variable-rate loans aggregating $100 million principal but then some of those loans experience prepayments, are sold, or experience credit difficulties. 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)In this Case, Entity B designates the 30-Day Average SOFR (in arrears) interest rate swap (described in paragraph [815-20-55-89B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-89B)) as hedging the cash flow variability attributable to changes in the interest payments received during each month for the next 3 years on a specified group of individual 30-Day Average SOFR-indexed (in arrears) variable-rate loans aggregating $100 million principal. Entity B elects to assess similar risk exposure in accordance with the method outlined in paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A). Consistent with the differences considered by Entity A in paragraph [815-20-55-96A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-96A), Entity B should consider differences between the individual forecasted transactions in the group and the contractual terms of the hedging instrument, including, for example, payment dates, reset dates, and interest rate floors. ##### [815-20-55-98](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-98) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:90ebd74e823eb8da81d132c89d795d0d6ba03821d6db1fcf7fd7f183a32a078b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case addresses whether the original cash flow hedging relationships remain intact if the composition of the group of loans whose interest payments are the hedged forecasted transactions is changed by replacing the principal amount of the specified loans with similar variable-rate interest-bearing loans. Entity B cannot conclude that the original cash flow hedging relationships have remained intact if the composition of the group of loans whose interest payments are the hedged forecasted transactions is changed by replacing the principal amount of the originally specified loans with similar variable-rate interest-bearing loans. Paragraph [815-20-25-15(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) requires that, for a cash flow hedge, the forecasted transaction be specifically identified as a single transaction or group of transactions. At inception, the entity designated cash flow hedging relationships for each of the variable interest receipts on a specified group of variable-rate loans. If a loan within the group experiences a prepayment, has been sold, or experiences an unexpected change in its [expected cash flows](https://asc.understandingaccounting.org/glossary/e/#expected-cash-flow "The probability-weighted average (that is, mean of the distribution) of possible future cash flows.") due to credit difficulties, the remaining hedged interest payments to Entity B specifically related to that loan are now no longer probable of occurring. Pursuant to paragraphs [815-30-40-1 through 40-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1) , Entity B must discontinue the hedging relationships with respect to the hedged forecasted transactions that are now no longer probable of occurring. However, had the hedged forecasted transactions been designated in a manner similar to that described in Case A, the consequences of a loan's prepayment, a loan sale, or an unexpected change in a loan's expected cash flows due to credit difficulties would not have been the same. How the forecasted transaction in a cash flow hedge is designated can have a significant effect on the application of the Derivatives and Hedging Topic. 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)After designation, some of the specifically identified loans experience prepayments, are sold, or experience credit difficulties. This Case addresses whether the original cash flow hedging relationships remain intact if the composition of the group of loans whose interest payments are the hedged forecasted transactions is changed by replacing the principal amount of the specified loans that experience a prepayment, have been sold, or experience a change in [expected cash flows](https://asc.understandingaccounting.org/glossary/e/#expected-cash-flow "The probability-weighted average (that is, mean of the distribution) of possible future cash flows.") due to credit difficulties with similar variable-rate interest-bearing loans. Entity B cannot conclude that the original cash flow hedging relationships have remained intact if the composition of the group of loans whose interest payments are the hedged forecasted transactions is changed by replacing the principal amount of the originally specified loans with similar variable-rate interest-bearing loans. Paragraph [815-20-25-15(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) requires that, for a cash flow hedge, the forecasted transaction be specifically identified as a single transaction or group of transactions. At inception, the entity designated cash flow hedging relationships for each of the variable interest receipts on a specified group of variable-rate loans. If a loan within the group experiences a prepayment, has been sold, or experiences an unexpected change in its expected cash flows due to credit difficulties, the remaining hedged interest payments to Entity B specifically related to that loan are now no longer probable of occurring. Pursuant to paragraphs [815-30-40-1 through 40-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1) , Entity B must discontinue the hedging relationships with respect to the hedged forecasted transactions that are now no longer probable of occurring. However, had the hedged forecasted transactions been designated in a manner similar to that described in Case A, the consequences of a loan's prepayment, a loan sale, or an unexpected change in a loan's expected cash flows due to credit difficulties would not have been the same. How the forecasted transaction in a cash flow hedge is designated can have a significant effect on the application of the Derivatives and Hedging Topic. ##### [815-20-55-99](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-99) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b9a1b7e0beb4ab9009c4bc94b67bec955628bdc8cec40dcca4cd715c1def2913 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Changing the composition of the specified individual loans within the group of variable-rate interest-bearing loans due to prepayment, a loan sale, or an unexpected change in a loan's expected cash flows due to credit difficulties reflects a change in the probability of the identified hedged forecasted transactions for the hedging relationships related to the individual loans removed from the group of variable-rate interest-bearing loans. Consequently, the hedging relationships for future interest payments that are no longer probable of occurring must be terminated. The provisions related to immediately reclassifying a derivative instrument's gain or loss out of accumulated other comprehensive income into earnings are based on the hedged forecasted transaction being probable that it will not occur—not no longer being probable of occurring—and includes consideration of an additional two-month period of time. After the discontinuation of the hedging relationships for interest payments related to the individual loans removed from the group of variable-rate interest-bearing loans and the reclassification into earnings of the net gain or loss in accumulated other comprehensive income related to those hedging relationships, the derivative instrument (or a proportion thereof) specifically related to the hedging relationships that have been terminated is eligible to be redesignated as the hedging instrument in a new cash flow hedging relationship. However, paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5) warns that a pattern of determining that hedged forecasted transactions are probable of not occurring would call into question both the entity's ability to accurately predict forecasted transactions and the propriety of using hedge accounting in the future for similar forecasted transactions. ##### [815-20-55-99A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-99A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:05e4ca4724025cc0c811a7f3b6668c58b06012448e28e7be4332b17c187d1344 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)In this Case, Entity C designates the 30-Day Average SOFR (in arrears) interest rate swap (described in paragraph [815-20-55-89B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-89B)) as hedging cash flow variability in the first interest payments received during each month for the next 3 years attributable to the contractually specified interest rates on $100 million of variable rate loans indexed to any combination of 30-Day Average SOFR (in arrears), 1-Month Term SOFR, and 30-Day Average Effective Federal Funds Rate (in arrears). ##### [815-20-55-99B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-99B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:46c9c3b388e94ba5d93046e083d055b8e6af0bc76cdc3c54b44ca61e10303961 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)By designating the hedged forecasted transactions as the first interest payments received on 30-Day Average SOFR-indexed (in arrears), 1-Month Term SOFR-indexed, and 30-Day Average Effective Federal Funds Rate-indexed (in arrears) variable-rate loans, Entity C considers the first interest payments on any of those loans as the hedged forecasted transactions when they occur. This method of designation allows Entity C to fulfill its forecasted transactions across a broader population of loans if any variable-rate loans experience a prepayment, are sold, or experience a change in its expected cash flows related to credit difficulties. ##### [815-20-55-99C](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-99C) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:cab1b22d9104aaaf9e022ec480d0a6521de1adc450bd43f60dc930f9c5b10151 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)If Entity C elects to assess similar risk exposure for the group of forecasted transactions using the method outlined in paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A) and determines that the similar risk exposure requirement is met, then Entity C also may reasonably conclude that the hedging relationship is expected to be highly effective at hedge inception if it documents the method described in paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A) as its method for assessing hedge effectiveness. Entity C should consider the differences between the individual forecasted transactions in the group and the contractual terms of the hedging instrument when performing those assessments. Those differences include, for example, interest rates, payment dates, reset dates, and interest rate floors. ##### [815-20-55-99D](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-99D) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9ff4236ce7a55dff21141dda7cad45af6a988bb74e86288a42b68ff235bfdbb0 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)Alternatively, if Entity C elects to assess similar risk exposure for the group of forecasted transactions using the method in paragraph [815-20-55-23A(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A) and determines that the similar risk exposure requirement is met, then Entity C should perform a separate assessment to conclude that the hedging relationship is expected to be highly effective at hedge inception. Entity C should use the concepts underlying assessments of hedge effectiveness, such as the hypothetical derivative method and regression analysis, when assessing whether each hedged risk is similar to each other risk in the group. Entity C should consider the differences between the respective hedged risks of the individual forecasted transactions in the group when performing the similar risk exposure assessment. Those differences include attributes that affect the hedged indexes, for example, interest rates, reset dates, and interest rate floors. ##### [815-20-55-99E](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-99E) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:169a7b508298303a70df8de5a6198ca4f42d55c4b2374524666114b63a4cf27a 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)If Entity C determines as part of its ongoing assessments that one or more hedged risks related to individual forecasted transactions in the group are no longer similar, Entity C should dedesignate the hedging relationship as of the last date when all hedged risks in the group were assessed to have similar risk exposure, unless Entity C can determine the specific date that all hedged risks in the group were no longer similar. However, the determination that one or more hedged risks in the group are no longer similar does not affect Entity C’s probability assessment related to the hedged forecasted transactions performed in accordance with paragraphs [815-30-40-4 through 40-6](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) . ##### [815-20-55-100](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-100) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:02af288114f0c1b4fc0ee0e79cf04a49c07bfa4eab63c26f048ac45cfb6c9bd1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-16(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-16). ##### [815-20-55-101](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-101) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1164da74b7939b70fbee80abe23aa11e48f464595fe6d760d9b6328d4ec288c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A general contractor enters into a long-term contract to build a power plant. The long-term contract is to be completed within five years. As part of the construction project, the general contractor expects to subcontract a portion of the construction to a foreign entity with a functional currency different from its own. Because the subcontractor will be paid in its functional currency, the general contractor will have a foreign currency exposure that it desires to hedge. At the start of the project, the general contractor concludes it is probable that the subcontract work will be completed and paid for at the end of Year 2. However, the general contractor knows that the timing of a subcontractor's work, and thus the foreign-currency-denominated payment for its work, may possibly be delayed by a period of more than two months, even though it is probable that the overall project will remain on schedule in meeting the ultimate completion date. The contractor intends to hedge the exposure by using a forward contract with a maturity date that coincides with the current expected date of payment (that is, a two-year foreign currency forward) and the expected notional amount of the forecasted transaction. ##### [815-20-55-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-102) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5ece563b1a849851eea9c122f84993d7b020aabcd4ddc446c3f642d220a75601 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The general contractor could document (as required by paragraph [815-20-25-3(d)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3)) that the hedged forecasted transaction is the foreign-currency-denominated payment to the foreign subcontractor to be paid within the five-year contract period of the overall project (which is the originally specified time period referred to in paragraphs [815-30-40-4 through 40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) ). In accordance with paragraph [815-20-25-16(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-16), as long as it remains probable that the forecasted transaction will occur by the end of the originally projected five-year period of the overall project, cash flow hedge accounting for that hedging relationship would continue. Consequently, if the subcontractor's payment is delayed by more than two months, but less than three years and two months, then the forecasted transaction would still be considered probable of occurrence within the originally specified time period. ##### [815-20-55-103](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-103) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ed28b79b9df8c2858d1d20add65f56769dede3eb8927585be8bd65017e494d2c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the expected timing of the forecasted transaction changes, the contractor must first apply the requirements of paragraph [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) using its originally documented hedging strategy and the newly revised best estimate of the cash flows, and then reevaluate whether continuing hedge accounting is appropriate, pursuant to the requirements of paragraphs [815-30-40-1 through 40-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-1) . If hedge accounting is discontinued prospectively, the derivative instrument's gains or losses in other comprehensive income should be accounted for pursuant to paragraphs [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) (unless paragraphs [815-30-40-4 through 40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) require reclassification into earnings). ##### [815-20-55-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-104) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ef4c113c3db924c890a11bee0f764cb3d2808ccfce6223c23495980713932338 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a quantitative assessment of hedge effectiveness is applied and the assessment of effectiveness is based on changes in forward rates, the most recent best estimate would be based on the current forward rate for the hedged transaction relevant for the probable date that the transaction will occur. If the assessment of effectiveness is based on changes in spot rates, the best estimate would be based on the current spot rate. ##### [815-20-55-105](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-105) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b11ad6ad716d7b071b722309576e6d5cd414c521242b401f8cbd9bbe73ff2860 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-19](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19). Consider an entity with existing variable-rate debt that is prepayable, resets monthly based on a specified bank's prime rate plus 1 percent as of the beginning of each month, and matures in 5 years. Although the variable-rate debt does, after each reset, have a fixed rate for each monthly period, it is inappropriate to characterize that debt as a series of fixed-rate debt instruments. When each reset occurs, it is not a new issuance of fixed-rate debt based on current market interest rates for that debtor; instead, it is a contractual continuation of a debtor-creditor relationship and the fixed rate for each month is explicitly (and contractually) based on a specific index (a specified bank's prime rate). ##### [815-20-55-106](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-106) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:67f423ace7f6ba711f5622ec58e6c98ba868ca06257121d0a650dc79aac8ad58 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-20](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-20). ##### [815-20-55-107](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-107) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a89db95de74be704468d2f34e927d48175bdade6f5570bd4d5c89ce0ee4b5f00 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A issues variable-rate debt that is prepayable at par on each interest rate reset date. The credit sector spread on the debt issuance is not reset on the interest rate reset dates. Specifically, the debt bears interest at a rate of LIBOR plus 100 basis points, with LIBOR reset every quarter. Entity A also enters into a receive-variable, pay-fixed interest rate swap that is designated as a hedge of the variability in the debt interest payments due to changes in the contractually specified interest rate (LIBOR). During the term of the hedging relationship (that is, the specific term of the interest rate swap), Entity A expects to issue new variable-rate debt (in the event the original debt is repaid before maturity) to maintain an aggregate debt principal balance equal to or greater than the notional amount of the interest rate swap, and expects the new debt (if any) to share the key characteristics of the original debt issuance (specifically, quarterly repricing to the LIBOR index and no minimum, maximum, or periodic constraints of the debt interest rate). The hedging relationship meets all of the criteria for shortcut method accounting beginning in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) except for the criterion in paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104); the debt is prepayable and the interest rate swap does not contain a mirror-image call option to match the call option embedded in the debt instrument, as required by that paragraph. ##### [815-20-55-108](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-108) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1bc099a875434c47c4f768e9a2f9bc31a5da52f7bc1ccee50fad1300f281b5d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A wishes to apply the hypothetical derivative method (as described beginning in paragraph [815-30-35-25](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-25)) for its initial and subsequent quantitative assessments of hedge effectiveness. Because the actual interest rate swap used in Entity A's hedging relationship already meets all of the criteria in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) except the criterion in paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), this guidance would seem to suggest that the hypothetical interest rate swap would need to be the same as the actual interest rate swap except that a mirror-image call option would need to be added to meet the criterion in that paragraph and the guidance beginning in paragraph [815-30-35-10](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10). However, Entity A observes that because the hedged transactions are the variable interest payments (on debt with a principal amount equal to the notional amount of the swap) due to changes in the contractually specified interest rate (LIBOR), and because the transaction had to be probable of occurring under paragraph [815-20-25-15(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) for it to qualify for hedge accounting, the actual swap would be expected to perfectly offset the hedged cash flows. ##### [815-20-55-109](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-109) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:7f03843ea07012e294e22be1c60bb838b2e151e90ed70e48fe5aa4be8d8ab28f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this fact pattern, the hypothetical interest rate swap under the guidance beginning paragraph [815-30-35-10](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10) would be the same as the actual interest rate swap described in this Example. Because Entity A has concluded that if the original debt issuance is repaid before maturity, it is probable that a sufficient principal amount of variable-rate debt with key characteristics that match those of the original debt issuance (specifically quarterly repricing to the LIBOR index and no minimum, maximum, or periodic constraints of the debt interest rate) will be issued and remain outstanding during the term of the hedging relationship (providing exposure to LIBOR-interest-rate-based variable cash payments), the prepayment provisions of the debt instrument should not be considered in determining the appropriate hypothetical derivative under that guidance. The prepayment of the original variable-rate debt eliminates the contractual obligation to make those interest payments; however, this Subtopic permits replacing the hedged interest payments that are no longer contractually obligated to be paid without triggering the dedesignation of the original cash flow hedging relationship. Replacing the original debt issuance with a new variable-rate debt issuance is permissible in a cash flow hedge of interest rate risk and does not automatically result in the discontinuation of the original cash flow hedging relationship. ##### [815-20-55-110](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-110) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f106ef14e14ca341c182bccc318fb8edd51d19135b01545775fa56c3d2944ac8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the entity can terminate the debt at any interest rate reset date for reasons that may be totally unrelated to changes in the contractually specified interest rate (which is the hedged risk), it expects to be at risk for variability in cash flows due to changes in the contractually specified interest rate in an amount based on debt principal equal to or greater than the notional amount of the swap during the specific term of the interest rate swap. Therefore, the prepayment feature of the debt is not relevant for purposes of determining the appropriate hypothetical swap under the guidance beginning in paragraph [815-30-35-10](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-10) as long as the relevant conditions to qualify for cash flow hedge accounting have been met with respect to the hedged transaction. ##### [815-20-55-111](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-111) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8fb9a4ee7c9c245a2e1e2aa9c3620faf4e9f20e29d36d94206b62576ef02f7bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of paragraph [815-20-25-21](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-21): 1. a Purchase of a nonfinancial asset (Case A) 2. b Purchase of a financial asset (Case B). ##### [815-20-55-112](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-112) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1728e5614834251f192c17ca5255cae0ce5911ba6e58d1712b10e0c55a07cc2d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Settling a forward contract gross involves delivery of an asset in exchange for the payment of cash or other assets and is differentiated from settling net, which typically involves a payment for the change in a contract's value as the method of settling the contract. ##### [815-20-55-113](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-113) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:0aeb199b25b619fa29a436df26c35189d78e05f1317112b33d4cf31cb7d75bca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A forecasted purchase or sale meets the definition of forecasted transaction and, if it is probable, meets the criteria in paragraph [815-20-25-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) for designation as a hedged transaction. An entity concerned about variability in cash flows from its forecasted purchases or sales can economically fix the price of those purchases or sales by entering into a fixed-price contract. Because the fixed-price purchase or sale contract is a derivative instrument, it is eligible for use as a hedging instrument. ##### [815-20-55-114](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-114) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3c07979e7035ed551255256d27b1b2c0e0c547c86d6dfcc1566b35525cc203da Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The forecasted purchase or sale at a fixed price is eligible for cash flow hedge accounting because the total consideration paid or received is variable. The total consideration paid or received for accounting purposes is the sum of the fixed amount of cash paid or received and the fair value of the fixed price purchase or sale contract, which is recognized as an asset or liability, and which can vary over time. ##### [815-20-55-115](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-115) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:751758bf0967f606e48cd97ba7c8563a34ec15af105bf80e22d075550f3ec9aa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A plans to purchase a nonfinancial asset. To fix the price to be paid (that is, to hedge the price), Entity A enters into a contract that meets the definition of a firm commitment with an unrelated party to purchase the asset at a fixed price at a future date. Assume that the terms of the contract (such as net settlement under the default provisions) or the nature of the asset cause the contract to meet the definition of a derivative instrument and the contract is not excluded by paragraphs [815-10-15-13 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) from the scope of the Derivatives and Hedging Topic. As such, Entity A has entered into a derivative instrument under which it is expected to take delivery of the asset. Entity A may designate the fixed-price purchase contract (that is, the derivative instrument) as a cash flow hedge of the variability of the consideration to be paid for the purchase of the asset (that is, the forecasted transaction) even though the derivative instrument is the same contract under which the asset itself will be acquired. 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)Entity A plans to purchase a nonfinancial asset. To fix the price to be paid (that is, to hedge the price), Entity A enters into a contract that meets the definition of a firm commitment with an unrelated party to purchase the asset at a fixed price at a future date. Assume that the terms of the contract (such as net settlement under the default provisions) or the nature of the asset cause the contract to meet the definition of a derivative instrument and the contract is not excluded by 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) from the scope of the Derivatives and Hedging Topic. As such, Entity A has entered into a derivative instrument under which it is expected to take delivery of the asset. Entity A may designate the fixed-price purchase contract (that is, the derivative instrument) as a cash flow hedge of the variability of the consideration to be paid for the purchase of the asset (that is, the forecasted transaction) even though the derivative instrument is the same contract under which the asset itself will be acquired. ##### [815-20-55-116](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-116) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:7753fc0ecb3f2faba28c6ac3494431e1c8a01aefb898427f0902a9a9c1be37a3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B plans to purchase U.S. government bonds and expects to classify those bonds in its available-for-sale portfolio. To fix the price to be paid (that is, to hedge the price), Entity B enters into a contract that meets the Derivatives and Hedging Topic's definition of a firm commitment with an unrelated party to purchase the bonds at a fixed price at a future date. Assume the contract meets the definition of a derivative instrument and is not excluded by paragraphs [815-10-15-13 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) from the scope of this Topic. As such, Entity B has entered into a derivative instrument under which it is expected to take delivery of the asset. Entity B may designate the fixed-price purchase contract (that is, the derivative instrument) as a cash flow hedge of the variability of the consideration to be paid for the purchase of the bonds (that is, the forecasted transaction) even though the derivative instrument is the same contract under which the asset itself will be acquired. 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)Entity B plans to purchase U.S. government bonds and expects to classify those bonds in its available-for-sale portfolio. To fix the price to be paid (that is, to hedge the price), Entity B enters into a contract that meets the Derivatives and Hedging Topic's definition of a firm commitment with an unrelated party to purchase the bonds at a fixed price at a future date. Assume the contract meets the definition of a derivative instrument and is not excluded by 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) from the scope of this Topic. As such, Entity B has entered into a derivative instrument under which it is expected to take delivery of the asset. Entity B may designate the fixed-price purchase contract (that is, the derivative instrument) as a cash flow hedge of the variability of the consideration to be paid for the purchase of the bonds (that is, the forecasted transaction) even though the derivative instrument is the same contract under which the asset itself will be acquired. ##### [815-20-55-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-117) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:11879784ea4fc14f9e51df58504853e6344ae7e82471b1496324a1a27ea8c066 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Example illustrates the application of paragraph [815-20-25-10](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-10) to a currency collar. 1. a [Subparagraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-118](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-118) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:58e6f4af09c81bf1b53b7c1e679b25aec283fbdef1e2a346cdbedff595d11de8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-119](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-119) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:58b46ad8acc767a36e8104c0174b7caf4e08368bc5282962b3dc1f09a97aca89 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-120](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-120) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bdcc6854d1b0a4e4c4debfa430b63bedfe5c98acdf223cb35c57cc671ac1cd5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-121](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-121) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:927544497a55b9770ca1d739d021969d403374f1b459cdd24b5a7a0184109321 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-122](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-122) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b2a8c856c142fdf62fd5e47efcda3f448bca687df5a78b1491c345c6842b79fd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-123](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-123) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:82fbb6e578abe3c514855376b47b0e99ba6f4e3ffb872c5f30fda8b67438720b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B forecasts that it will purchase inventory that will cost 100 million foreign currency (FC) units. Entity B's functional currency is the U.S. dollar (USD). To limit the variability in USD-equivalent cash flows associated with changes in the USD-FC exchange rate, Entity B constructs a currency collar as follows: 1. a A purchased call option providing Entity B the right to purchase FC 100 million at an exchange rate of USD 0.885 per FC 1. 2. b A written put option obligating Entity B to purchase FC 50 million at an exchange rate of USD 0.80 per FC 1. ##### [815-20-55-124](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-124) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c8adcc64a75d555be135fc069b4cb13dc2bc9672514bce8a28276fa551b96495 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The purchased call option provides Entity B with protection when the USD-FC exchange rate increases above USD 0.885 per FC 1. The written put option partially offsets the cost of the purchased call option and obligates Entity B to give up some of the foreign currency gain related to the forecasted inventory purchase as the USD-FC exchange rate decreases below USD 0.80 per FC 1. (For both options, the underlying is the same—the USD-FC exchange rate.) Assuming that a net premium was not received for the combination of options and all the other criteria in paragraphs [815-20-25-89 through 25-90](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89) have been met, if Entity B chooses to use the combination of options as a hedging instrument, it is not required to comply with the provisions contained in paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94) related to written options. ##### [815-20-55-125](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-125) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:7e7e1c78ac85da102b8e6fe8c03fbbc48dd4c8e16c895e0c4550ead6e19192df Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B would like to designate the combination of options as a hedge of the variability in USD-equivalent cash flows of its forecasted purchase of inventory denominated in FC. Assume Entity B specifies in the hedge effectiveness documentation that the collar's time value would be excluded from the assessment of hedge effectiveness. ##### [815-20-55-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-126) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8ae62e10543aa7137792d5b48b72d9e60ef8f8416128dcc6fd2bc0097ba66b0b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedging relationship involving the currency collar designated as a hedge of the effect of fluctuations in the USD-FC exchange rate qualifies for cash flow hedge accounting. In that example, the hedged risk is the risk of changes in USD-equivalent cash flows attributable to foreign currency risk (specifically, the risk of fluctuations in the USD-FC exchange rate). The foreign currency collar is hedging the variability in USD-equivalent cash flows for 100 percent of the forecasted FC 100 million purchase price of inventory for USD-FC exchange rate movements above USD 0.885 per FC 1 and variability in USD-equivalent cash flows for 50 percent of the forecasted FC 100 million purchase price of inventory for USD-FC exchange rate movements below USD 0.80 per FC 1. Cash flow hedge effectiveness will be determined based on changes in the underlying (the USD-FC exchange rate) that cause changes in the collar's intrinsic value (that is, changes below USD 0.80 per FC 1 and above USD 0.885 per FC 1). Because the hedge's effectiveness is based on changes in the collar's intrinsic value, hedge effectiveness must be assessed based on the actual exchange rate changes by comparing the change in intrinsic value of the collar to the change in the specified quantity of the forecasted transaction for those changes in the underlying. ##### [815-20-55-127](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-127) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:7b1ddb64b7a3642a77a340917eb35adec22433bf088a053fc074c9225716f1c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-55-38](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-38). ##### [815-20-55-128](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-128) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:e1f4001473bf8509770b27247b2cf2d251b5202bef1d9d93dbd3cdf16e427404 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A U.S. parent entity (Parent A) with a U.S. dollar (USD) functional currency has a German subsidiary that has the Euro (EUR) as its functional currency. On January 1, 2001, Parent A issues a five-year, fixed-rate EUR-denominated debt instrument and designates that EUR-denominated debt instrument as a hedge of its net investment in the German subsidiary. On the same date, Parent A enters into a five-year EUR-denominated receive-fixed, pay-Euribor-interest rate swap. Parent A designates the interest rate swap as a hedge of the foreign-currency-denominated fair value of the fixed-rate EUR-denominated debt instrument attributable to changes in Euribor interest rates, which is considered the benchmark interest rate for a hedge of the EUR-denominated fair value of that instrument. ##### [815-20-55-129](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-129) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1d0f9ba3bf933f9c2fd7492816977681fcd915719f9ceaf3bb7a39a7b555b350 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As permitted by paragraph [815-20-55-38](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-38), Parent A may designate the EUR-denominated debt instrument as a hedge of its net investment in the German subsidiary and also as the hedged item in a fair value hedge of the debt instrument's foreign-currency-denominated fair value attributable to changes in the designated benchmark interest rate. As a result of applying fair value hedge accounting, the debt's carrying amount will be adjusted to reflect changes in its foreign-currency-denominated fair value attributable to interest rate risk. The notional amount of the debt that is designated as the hedging instrument in the net investment hedge will change over time such that it may not match the notional amount of the hedged net investment. The entity then applies the net investment hedge guidance in Subtopic 815-35 and the fair value hedge guidance in Subtopic 815-25. As discussed in paragraphs [815-35-35-13 through 35-14](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-13) , because the notional amount of the nonderivative instrument designated as a hedge of the net investment does not match the portion of the net investment designated as being hedged, hedge effectiveness is assessed by comparing the following two values: 1. a The foreign currency transaction gain or loss based on the spot rate change (after tax effects, if appropriate) of that nonderivative hedging instrument 2. b The transaction gain or loss based on the spot rate change (after tax effects, if appropriate) that would result from the appropriate hypothetical nonderivative instrument that has a notional amount that matches the portion of the net investment being hedged. The hypothetical nonderivative instrument also would have a maturity that matches the maturity of the actual nonderivative instrument designated as the net investment hedge. 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)As permitted by paragraph [815-20-55-38](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-38), Parent A may designate the EUR-denominated debt instrument as a hedge of its net investment in the German subsidiary and also as the hedged item in a fair value hedge of the debt instrument's foreign-currency-denominated fair value attributable to changes in the designated benchmark interest rate. As a result of applying fair value hedge accounting, the debt's carrying amount will be adjusted to reflect changes in its foreign-currency-denominated fair value attributable to interest rate risk. Parent A should exclude the fair value hedge basis adjustment from the assessment of effectiveness in the designated net investment hedging relationship. Accordingly, the notional amount of the debt that is designated as the hedging instrument in the net investment hedge will not change over time as a result of applying fair value hedge accounting such that it may continue to match the portion of the net investment being hedged. The entity then applies the net investment hedge guidance in Subtopic 815-35 and the fair value hedge guidance in Subtopic 815-25. Because the debt’s fair value hedge basis adjustment is not included in the assessment of effectiveness of the net investment hedging relationship, the effect of changes in the spot rate on the fair value hedge basis adjustment is recognized currently in earnings in accordance with Subtopic 830-20. ##### [815-20-55-130](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-130) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bbd14a92ec3513edd6e5c593363c3645c59551dab4b5be9fecf5599710d6ca29 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-30(a)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30). If a dollar- (USD-) functional, second-tier subsidiary has a Euro (EUR) exposure, the USD-functional consolidated parent entity could designate its USD-EUR derivative instrument as a hedge of the second-tier subsidiary's exposure if the functional currency of the intervening first-tier subsidiary (that is, the parent of the second-tier subsidiary) is also USD. In contrast, if the functional currency of the intervening first-tier subsidiary was the Japanese yen (JPY) (thus requiring the financial statements of the second-tier subsidiary to be translated into JPY before the JPY-denominated financial statements of the first-tier subsidiary are translated into USD for consolidation), the consolidated parent entity could not designate its USD-EUR derivative instrument as a hedge of the second-tier subsidiary's exposure. ##### [815-20-55-131](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-131) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ced29fcc067f35a83fbe37fbeaa2d6f9ee9678682dcbdcaef6ace595beac7c3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [hybrid instrument](https://asc.understandingaccounting.org/glossary/h/#hybrid-instrument "A contract that embodies both an embedded derivative and a host contract.")[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.")During January 1998, Entity A issued a $100 million structured note that pays quarterly a 3 percent annual rate of interest plus an additional quarterly return based on any increase in the Standard and Poor's S&P 500 Index for that quarter, with a guaranteed return of principal at maturity. Because of grandfathering provisions when the guidance in this Topic initially took effect, the embedded equity derivative instrument was not separated from the debt host contract. The following guidance relates to Entity A's ability to designate various fair value and cash flow hedging relationships involving the example structured note: 1. a Entity A may designate a fair value hedge of the risk of changes in the structured note's overall fair value. Because Entity A must have an expectation at the inception of the hedge and on an ongoing basis that the hedging relationship will be highly effective in achieving offsetting changes in fair value during the period the hedge is designated, it must obtain a derivative instrument or combination of derivative instruments that would be a highly effective hedge of changes in the structured note's overall fair value. While this strategy is permitted, it may be difficult to construct a hedging instrument that is highly effective in offsetting the interest-rate-based and equity-based components of the structured note's return while also encompassing a hedge of credit risk exposure. However, if it is expected that the embedded equity-based component of the structured note will generate de minimis changes in fair value during the hedge period, an expectation of high effectiveness may be established. 2. b Entity A may designate a fair value hedge of the risk of changes in the fair value of the embedded equity derivative that is not being accounted for separately. The equity-based component of the structured note is an equity derivative that provides the holder of the structured note with potential gains resulting from increases in the S&P 500 Index. That equity derivative can be identified as the hedged item because it is a portion of a recognized liability that meets the requirements in paragraph [815-20-25-12(b)(2)(iii)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12). 3. c Entity A may designate a fair value hedge of the risk of changes in the structured note's fair value attributable to changes in the designated benchmark interest rate (for example, the U.S. Treasury rate). Similar to the hedging relationship discussed under (a), Entity A must have an expectation at the inception of the hedge and on an ongoing basis that the hedging relationship will be highly effective in achieving offsetting changes in fair value attributable to the benchmark interest rate during the period the hedge is designated. If Entity A calculates the change in the fair value of the hedged item attributable to interest rate risk based on the full contractual coupon cash flows, it is unlikely that it could establish an expectation that a derivative instrument based on the benchmark interest rate would be highly effective as a hedge of the structured note's fair value attributable to interest rate risk because of the effect of the equity-based-component on the calculation of that change in fair value attributable to interest rate risk. Therefore, in employing this measurement methodology, Entity A must incorporate into that calculation the cash flows that will be generated by both the structured note's interest-rate-based component (based on the 3 percent fixed rate) and an estimation of the cash flows that will be generated by the equity-based component (based on expected increases in the S&P 500 Index). While this hedging relationship would typically be expected not to qualify as a fair value hedge of interest rate risk, if it is expected that the embedded equity-based component of the structured note will have a de minimis effect on the changes in fair value of the structured note during the hedge period, an expectation that the hedging relationship will be highly effective in achieving offsetting changes in fair value attributable to interest rate risk may be established. Alternatively, Entity A may calculate the change in the fair value of the hedged item attributable to interest rate risk using the benchmark interest rate component of the contractual coupon cash flows determined at hedge inception. In employing this measurement methodology, Entity A should not estimate the hedged item's cash flows expected to be generated by the equity-based component. 4. d Entity A may designate a cash flow hedge of the risk of changes in the structured note's total quarterly cash flows. To be highly effective, the entity would be required to designate as the hedging instrument a derivative instrument that is expected to produce offsetting cash flows as the S&P 500 Index increases. 5. e Entity A may not designate a cash flow hedge of interest rate risk of the structured note because it does not have a contractually specified interest rate. ##### [815-20-55-132](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-132) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3116c42c4eb6c78faf8b4aafad76666b2da0f89adacbc3968465db83f4f36df4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of paragraph [815-20-25-39(d)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39) regarding whether all the variability in a hedged item's functional-currency-equivalent cash flows are eliminated by the effect of the hedge: 1. a Difference in optionality (Case A) 2. b Difference in reset dates (Case B) 3. c Difference in notional amounts (Case C). ##### [815-20-55-133](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-133) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:2ce2722538b8bf741bc62a0746979fafc1f67a9d8e51333b87a8e7552bc32aab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity has issued a fixed-rate foreign-currency-denominated debt obligation that is callable (that is, by that entity) and desires to hedge its foreign currency exposure related to that obligation with a fixed-to-fixed cross-currency swap. A fixed-to-fixed currency swap could be used to hedge the fixed-rate foreign-currency-denominated debt instrument that is callable even though the swap does not contain a mirror-image call option as long as the terms of the swap and the debt instrument are such that they would be highly effective at providing offsetting cash flows and as long as it was probable that the debt instrument would not be called and would remain outstanding. ##### [815-20-55-134](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-134) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9ac497c0cb2815582109f3e0812e0ae91308cded951067a35a70370b4719ca52 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity has issued a variable-rate foreign-currency-denominated debt obligation and desires to hedge its foreign currency exposure related to that obligation. The entity uses a variable-to-fixed cross-currency interest rate swap in which it receives the same foreign currency based on the variable rate index contained in the debt obligation and pays a fixed amount in its functional currency. If the swap would otherwise meet this Subtopic's definition of providing high effectiveness in hedging the foreign currency exposure of the debt instrument, but there is a one day difference between the reset dates in the debt obligation and the swap (that is, the one day difference in reset dates results in the hedge being highly effective, but not perfectly effective), the variable-to-fixed cross-currency interest rate swap could be used to hedge the variable-rate foreign-currency-denominated debt instrument even though there is a one-day difference between the reset dates or a slight difference in the notional amounts in the debt instrument and the swap. This would be true as long as the difference in reset dates or notional amounts is not significant enough to cause the hedge to fail to be highly effective at providing offsetting cash flows. ##### [815-20-55-135](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-135) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:417a19bef0c0e1940408a1db7d5a1ad9d942347eb5faf648875c059ee341f80d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case involves the same facts as in Case B, except that there is no difference in the reset dates. However, there is a slight difference in the notional amount of the swap and the hedged item. If the swap would otherwise meet this Subtopic's definition of providing high effectiveness in hedging the foreign currency exposure of the debt instrument, paragraph [815-20-25-39(d)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39) does not preclude the swap from qualifying for hedge accounting simply because the notional amounts do not exactly match. The mismatch attributable to the slight difference in the notional amount of the swap and the hedged item could be eliminated by designating only a portion of the contract with the larger notional amount as either the hedging instrument or hedged item, as appropriate. ##### [815-20-55-136](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-136) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ae6172366064d40a4fd295f3f68008149cc8ac5f162369d4bc4b25dbf5f8573a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate hedging foreign exchange risk under the cash flow hedging model as discussed in paragraph [815-20-25-42](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-42) and others: 1. a Firm commitment (Case A) 2. b Fixed-price agreement (Case B). ##### [815-20-55-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-137) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:086281d57402dbb0a0aecbb9cf9d11de70179db5fff9471e51734fad0ab4d248 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, an entity enters into an agreement to sell 1,000 tons of a nonfinancial asset to an unrelated party on June 30. The agreement meets the definition of a firm commitment. The firm commitment is denominated in the buyer's functional currency, which is not the seller's functional currency. Accordingly, the firm commitment exposes the seller to foreign currency risk. The seller may hedge the foreign currency exposure arising from the firm commitment under the fair value hedging model. ##### [815-20-55-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-138) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:681e739a2f6effa698f1ff940b34185215be9bfb98eae2539aed5e8448d8df84 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The seller may hedge its exposure to foreign currency risk under the cash flow hedging model even though the agreement meets the definition of a firm commitment. Accordingly, the seller may hedge the foreign currency exposure arising from the firm commitment to sell 1,000 tons of the nonfinancial asset under the cash flow hedging model, even though the seller has previously hedged its foreign currency exposure arising from another similar firm commitment under the fair value hedging model. ##### [815-20-55-139](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-139) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:16959e9cb2e1b7828a2a9db629fea323dfe6d40d5a3dcbf134db9c6054f922e7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, an entity enters into an agreement to sell 1,000 tons of a nonfinancial asset to an unrelated party on June 30. Although the agreement in this Case does not meet the definition of a firm commitment, the seller's assessment of the observable facts and circumstances is that performance under the agreement is probable. The agreement is denominated in the buyer's functional currency, which is not the seller's functional currency. Accordingly, the foreign-currency-denominated fixed-price agreement exposes the seller to foreign currency risk. ##### [815-20-55-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-140) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:74fdfd60cbeb110c90fd7e475f798676cfa0a8f68284dfba0f602253a5fe9975 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the agreement does not meet the definition of a firm commitment, but contains a fixed foreign-currency-denominated price, the seller may not hedge the foreign currency risk relating to the agreement to sell the nonfinancial asset under the fair value hedging model because the agreement is not a recognized asset, a recognized liability, or a firm commitment, which are the only items that can be designated as the hedged item in a fair value hedge. However, the seller may hedge the foreign currency risk relating to the agreement under the cash flow hedging model. The agreement is by definition a forecasted transaction because the sale of the nonfinancial assets will occur at the prevailing market price, that is, the fixed foreign-currency-denominated market price converted into the seller's functional currency at the prevailing exchange rate when the transaction occurs. Therefore, because the agreement includes a fixed foreign-currency-denominated price, the agreement exposes the seller to variability in the functional-currency-equivalent cash flows. Accordingly, the seller may not hedge the foreign currency risk relating to the agreement to sell 1,000 tons of the nonfinancial asset under the fair value hedging model but may hedge the foreign currency risk under the cash flow hedging model. ##### [815-20-55-141](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-141) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8bb267e2160d38aabc83e1bfe8be30ef66250af66314a36a5e2a1f6f882ee33b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of paragraph [815-20-25-41](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-41) to fixed-rate and variable-rate foreign-currency-denominated debt: 1. a Foreign-currency-denominated fixed-rate debt (Case A) 2. b Foreign-currency-denominated variable-rate debt (Case B). ##### [815-20-55-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-142) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c2084b580cc354871c5e14b685e4dc8bffc7f7b7924b3be8db383a0464086ac1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Specifically, for each of the eight situations presented collectively in Cases A (see paragraph [815-20-55-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-143)) and B (see paragraph [815-20-55-153](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-153)), an entity can use cash flow hedge accounting to hedge the variability in the specific principal repayments, interest cash flows, or both by applying the guidance in paragraph [815-30-35-3(d)](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) to the specifically identified hedged cash flows. Only an amount that would offset the transaction gain or loss arising from the remeasurement of a hedged cash flow would be reclassified each period from other comprehensive income to earnings. Also, the change in the fair value of the forward points (time value) attributable to the hedged future cash flows would be reported in other comprehensive income, while the change in the fair value of the forward points (time value) attributable to the unhedged future cash flows would be reported in earnings. ##### [815-20-55-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-143) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ddcdec9a98ca80b9bdbf2304a76850ec14e0ed47ea800c6874d02b1b5b6db424 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity ABC, a U.S. dollar (USD) functional entity, issues a five-year foreign-currency-denominated fixed-rate debt obligation that requires interest payments and partial principal payments annually in the foreign currency with the remaining principal due at the end of five years (maturity) in the foreign currency. More specifically, Entity ABC issues an FC 45 million debt obligation on December 31, 20X0, with FC 5 million due on December 31 of each of the next 4 years and FC 25 million due on December 31, 20X5. Interest payments at 10 percent are paid annually. ##### [815-20-55-144](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-144) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:e86a739e670a446021e58ddf3deb743ea7684692a67a7e3a9865aee7f7d28eee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, Entity ABC can use cash flow hedge accounting to hedge the variability in its functional-currency-equivalent cash flows associated with any of the following: 1. a All of the payments of both principal and interest of the debt 2. b All of the payments of principal of the debt 3. c All or a fixed portion of selected payments of either principal or interest of the debt (such as either principal or interest payments on December 31, 2001, and December 31, 2003) 4. d Selected payments of both principal and interest of the debt (such as principal and interest payments on December 31, 2001, and December 31, 2003). ##### [815-20-55-145](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-145) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f0ce16f135f350048e5e576a00260621249a279fdf5a6d61788ccafec4786ca3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For instance, Entity ABC could use a receive-fixed-rate, pay-fixed-rate cross-currency interest rate swap or a series of forward contracts to eliminate variability attributable to foreign exchange rates. ##### [815-20-55-146](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-146) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:eb98c1e5673597937ac1a864a8c2d4c081fd3a8cd341a55229be805c0f33bea2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following illustrates the second option, hedging the variability in all principal cash flows attributable to foreign exchange risk. ##### [815-20-55-147](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-147) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1cda3c6f8a6500ca29529df78e5d340d45ef51a732aa3fa973e63a574e00e023 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity ABC enters into the following five forward contracts to hedge all principal cash flows: 1. a Forward contract to purchase FC 5,000 on December 31, 20X1, at a forward rate of 1.05061019 2. b Forward contract to purchase FC 5,000 on December 31, 20X2, at a forward rate of 1.06061601 3. c Forward contract to purchase FC 5,000 on December 31, 20X3, at a forward rate of 1.07066924 4. d Forward contract to purchase FC 5,000 on December 31, 20X4, at a forward rate of 1.08076989 5. e Forward contract to purchase FC 25,000 December 31, 20X5, at a forward rate of 1.090871. ##### [815-20-55-148](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-148) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ca54c18f1d4cf3e0f1c04c7377e0f5ac9972682e55565ee47729707c4eccf2e1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Exchange rates are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-E0D18F5E-80C5-45F3-8772-E234737A2EC1-low.gif) Period Spot 12/31/X1 Forward 12/31/X2 Forward 12/31/X3 Forward 12/31/X4 Forward 12/31/X5 Forward 12/31/X0 1.04060438 1.05061019 1.06061601 1.07066924 1.08076989 1.090871 12/31/X1 1.1 1.12125604 1.14271548 1.16448149 1.18655697 12/31/X2 1.1 1.12125604 1.14272548 1.16448149 12/31/X3 1.1 1.12125604 1.14272548 12/31/X4 1.1 1.12125604 12/31/X5 1.1 ##### [815-20-55-149](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-149) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3e236f477ad208aed44062c69ef1bc31dfdd3e44773d22607ed64d4ddb35b641 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity ABC would make the following journal entries. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F2AAB085-4433-4E18-AECB-6559DE230AF1-low.gif) Debit (Credit) Cash Forward Contracts Note Payable Income or Expense Accum. Other Comprehensive Income Inception 12/31/X0 " 46,827 " " (46,827)" "December 31, 20X1 entries:" Repayment of principal " (5,500)" " 5,203 " 297 Payment of interest " (4,950)" " 4,950 " Transaction loss on note payable " (2,376)" " 2,376 " Fair value of forward contract #1 247 (247) Settlement of forward #1 247 (247) Offset $247 of loss on principal ($50 related to cost of hedge remains in earnings) (247) 247 Fair value of forward contracts #2-5 (based on 6% discount rate) " 2,853 " " (2,853)" Paragraph 815-30-35-3(d) adjustment—offset the transaction loss related to principal " (1,734)" " 1,734 " Paragraph 815-30-35-3(d) adjustment—effect of hedge 396 (396) "December 31, 20X2 entries:" Repayment of principal " (5,500)" " 5,203 " 297 Payment of interest " (4,400)" " 4,400 " Fair value of forward contract #2 (89) 89 Settlement of forward #2 197 (197) Offset $197 of loss on principal ($100 related to cost of hedge remains in earnings) (197) 197 Fair value of forward contracts #3-5 (based on 6% discount rate) (507) 507 Paragraph 815-30-35-3(d) adjustment—effect of hedge 299 (299) Change in time value related to principal goes to other comprehensive income or change in time value related to interest goes to earnings (a) 297 (180) (117) "December 31, 20X3 entries:" Repayment of principal " (5,500)" " 5,203 " 297 Payment of interest " (3,850)" " (3,850)" Fair value of forward contract #3 (92) 92 Settlement of forward #3 147 (147) Offset $147 of loss on principal ($150 related to cost of hedge remains in earnings) (147) 147 Fair value of forward contracts #4-5 (based on 6% discount rate) (477) 477 Paragraph 815-30-35-3(d) adjustment—effect of hedge 202 (202) Change in time value related to principal goes to other comprehensive income or change in time value related to interest goes to earnings 297 (168) (129) "December 31, 20X4 entries:" Repayment of principal " (5,500)" " 5,203 " 297 Payment of interest " (3,300)" " 3,300 " Fair value of forward contract #4 (95) 95 Settlement of forward #4 96 (96) Offset $96 of loss on principal ($201 related to cost of hedge remains in earnings) (96) 96 Fair value of forward contract #5 (based on 6% discount rate) (437) 437 Paragraph 815-30-35-3(d) adjustment—effect of hedge 104 (104) Change in time value related to principal goes to other comprehensive income or change in time value related to interest goes to earnings 297 (154) (143) "December 31, 20X5 entries:" Repayment of principal " (27,500)" " 26,015 " " 1,485 " Payment of interest " (2,750)" " 2,750 " Fair value of forward contract #5 (488) 488 Settlement of forward #5 228 (228) Offset $228 of loss on principal (228) 228 Paragraph 815-30-35-3(d) adjustment—effect of hedge " 1,485 " " (1,001)" (484) Change in time value related to principal goes to other comprehensive income or change in time value related to interest goes to earnings (140) 140 " (21,008)" - - (b) - (a) "The entry recording the $297 gain for the period ended December 31, 20X2, results from the spot exchange rate remaining unchanged from December 31, 20X1, and one less period remaining on the loan payable. The $117 principal portion of the gain goes to other comprehensive income because only principal is being hedged. The $180 interest portion of the gain goes to earnings because interest is not being hedged." (b) See Schedule 3 (paragraph 815-20-55-152) for income or expense for each period. ##### [815-20-55-150](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-150) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:0f84f68e3350a47bbe82c8a789ed8465a2f9cb65e9d1dd1331baa45a4abbd8d1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following schedules support the preceding entries. - ![](https://asc.understandingaccounting.org/asc-img/GUID-38E44412-6B22-4627-9D54-6386DB7FA2EE-low.gif) Schedule 1 Foreign Currency Functional Currency at 12/31/X0 Spot Rate (1) Functional Currency at Current Spot Rate (2) Transaction Gain or Loss (2) - (1) Change in Time Value 12/31/X0 Principal " 30,976 " (a) " 32,234 " Interest " 14,024 " (a) " 14,593 " Loan value " 45,000 " " 46,827 " 12/31/X1 Principal " 29,192 " " 30,377 " " 32,111 " " 1,734 " Interest " 10,808 " " 11,247 " " 11,889 " 642 Loan value " 40,000 " " 41,624 " " 44,000 " 12/31/X2 Principal " 27,222 " " 28,328 " " 29,945 " " 1,617 " "117 = (1,734 - 1,617) " Interest " 7,778 " " 8,093 " " 8,555 " 462 180 = (642 - 462) Loan value " 35,000 " " 36,421 " " 38,500 " 12/31/X3 Principal " 25,048 " " 26,065 " " 27,553 " " 1,488 " "129 = (1,617 - 1,488)" Interest " 4,952 " " 5,153 " " 5,447 " 294 168 = (462 - 294) Loan value " 30,000 " " 31,218 " " 33,000 " 12/31/X4 Principal " 22,649 " " 23,568 " " 24,913 " " 1,345 " 143 Interest " 2,351 " " 2,447 " " 2,586 " 140 154 Loan value " 25,000 " " 26,015 " " 27,500 " 12/31/X5 (before final principal payment is made) Principal " 25,000 " " 26,015 " " 27,500 " " 1,485 " (140) Interest - - - 140 Loan value " 25,000 " " 26,015 " " 27,500 " (a) The value ascribed to the principal portion was determined by discounting the future principal payments at an annual rate of 10% compounded quarterly. The value ascribed to the interest portion was determined by discounting future quarterly interest accruals at an annual rate of 10%. ##### [815-20-55-151](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-151) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d610ef931c09c2450ddf041b4b65f7ff8471e907f8a233d7f2a33e46c709da66 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Schedule 2 provides the amount of cost attributed to each period for each forward contract. Each period's cost is determined based on applying the interest method to each forward contract. - ![](https://asc.understandingaccounting.org/asc-img/GUID-CCECCF7E-253E-4772-9F56-323C5AC54D7C-low.gif) Schedule 2 Forward Contract #1 Forward Contract #2 Forward Contract #3 Forward Contract #4 Forward Contract #5 Total 12/31/X1 $50.03 $49.79 $49.63 $49.50 $246.61 $445.56 12/31/X2 50.27 50.11 49.97 248.95 399.30 12/31/X3 50.59 50.44 251.31 352.34 12/31/X4 50.92 253.69 304.61 12/31/X5 256.11 256.11 Total $50.03 $100.06 $150.33 $200.83 " $1,256.67 " " $1,757.92 " ##### [815-20-55-152](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-152) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c120bf203c6bcd9db8035e7e4a2a4831655cb26ec01ea311cc86d97be399f0e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Schedule 3 provides a breakdown for each year-end reporting period. - ![](https://asc.understandingaccounting.org/asc-img/GUID-F3D4955B-652C-4605-AB4F-FAF1A8441E70-low.gif) Schedule 3 12/31/X1 " $4,950 " Interest expense 446 Cost of hedge (396 + (297 - 247)) 642 "Transaction loss related to unhedged interest (2,376 - 1,734)" " $6,038 " Total expense 12/31/X2 " $4,400 " Interest expense 399 Cost of hedge (299 + (297 - 197)) (180) Time value related to unhedged interest " $4,619 " Total expense 12/31/X3 " $3,850 " Interest expense 352 Cost of hedge (202 + (297 - 147)) (168) Time value related to unhedged interest " $4,034 " Total expense 12/31/X4 " $3,300 " Interest expense 305 Cost of hedge (104 + (297 - 96)) (154) Time value related to unhedged interest " $3,451 " Total expense 12/31/X5 " $2,750 " Interest expense 256 "Cost of hedge (1,485 - (1,001 + 228))" (140) Time value related to unhedged interest " $2,866 " Total expense ##### [815-20-55-153](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-153) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3035e12736bf63c783aa597f9d8fd20f4196f1e84a04b164a679d89d7c624326 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity XYZ, a U.S. dollar (USD) functional entity issues a five-year foreign-currency-denominated variable-rate debt obligation that requires interest payments and partial principal payments annually in the foreign currency with the remaining principal due at the end of five years (maturity) in the foreign currency. More specifically, Entity XYZ issues an FC 45 million debt obligation on December 31, 20X0, with FC 5 million due on December 31 of each of the next 4 years and FC 25 million due on December 31, 20X5. Interest payments are paid annually based on LIBOR. ##### [815-20-55-154](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-154) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a03330dd122a00d1922ffbbd05e23395f82bbe3106a8da0399d46b04feb0d3d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case the guidance in paragraph [815-20-25-41](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-41) provides that Entity XYZ can use cash flow hedge accounting to hedge the variability in its functional-currency-equivalent cash flows associated with any the following: 1. a All of the payments of both principal and interest of the debt 2. b All of the payments of principal of the debt 3. c All or a fixed portion of selected payments of either principal or interest of the debt 4. d Selected payments of both principal and interest of the debt (such as principal and interest payments on December 31, 2001, and December 31, 2003). ##### [815-20-55-155](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-155) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8e71f4c84a6095979fa4c1329359e93aeddb4afb60d8105ef7d38025b991001d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity could use a receive-variable-rate, pay-fixed-rate cross-currency interest rate swap to eliminate variability attributable to interest rates and foreign exchange rates. In cash flow hedges of recognized foreign-currency-denominated assets and liabilities, the entity must assess whether the changes in cash flows attributable to the risk being hedged are expected to offset at the inception of the hedging relationship and on an ongoing basis. In a manner similar to that described beginning in paragraph [815-30-35-25](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-25), the entity would assess the effectiveness of the hedge using the hypothetical derivative method. After the initial quantitative assessment of hedge effectiveness, the entity may elect to assess hedge effectiveness on a qualitative or quantitative basis. ##### [815-20-55-156](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-156) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:889f9548134393e7c0e9802a189677415658c24faed3e82d797ea9f7cc15b9b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates whether an oil-linked interest rate cap can be designated in a qualifying hedging relationship. ##### [815-20-55-157](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-157) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b7113381b0a84a0161642134e50db77536a6839594310bc0469166235f3b0c9c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A enters into a complex option contract with multiple underlyings for which no net premium is received. The payoffs under the contract are nontraditional. Entity A wishes to designate the option in a cash flow hedging relationship. Specifically, Entity A is an oil producer with five-year variable-rate debt (indexed to three-month LIBOR) and is concerned that an environment of falling oil prices and rising interest rates could affect its ability to meet increasing interest payments on the variable-rate debt. To limit its exposure, Entity A enters into a five-year oil-linked interest rate cap with a notional amount equal to the principal amount of Entity A's three-month LIBOR-based variable-rate debt. ##### [815-20-55-158](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-158) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:362e14f69bf8b9ae9633d4cb963c3f25ad3472c8b2f7735ab3ffb0f4cab71a7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the terms of the oil-linked interest rate cap (a complex option), Entity A receives specified payments if both of the following conditions exist: 1. a 3-month LIBOR is greater than 7 percent 2. b The price of oil is less than $25 per barrel. ##### [815-20-55-159](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-159) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5f888e8f268e1e48e5578e8e2712be690c785f5c1b49e50d128142840afab424 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Specifically, if both of the conditions in the preceding paragraph are met, Entity A receives payments under the oil-linked interest rate cap equal to the increased interest payments (that is, for floating-rate amounts above 7 percent) due on their floating-rate debt. ##### [815-20-55-160](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-160) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:22f66a0050ba977b187afbe6182b548a2b285a4ecb1869f17a354ec45dd51846 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, if the daily price of oil goes above $25 per barrel at any time during a quarter, the option is knocked out for only that specific quarter. The option's knock-out feature is reset each quarter such that the interest rate coverage is knocked out for a specific quarter only if the daily price of oil goes above $25 per barrel at any time during that specific quarter. Thus, the option limits Entity A's exposure to increases in interest rates for all quarters in which oil prices remain under $25 per barrel throughout the quarter. ##### [815-20-55-161](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-161) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:51d7baca6a3fd1c2fb749066ab87daeae3c861564f71e9fa46ecbc41eafe6134 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The oil-linked interest rate cap cannot be designated in a hedge of the variability in the difference between interest payments and sales proceeds on oil. The oil-linked interest rate cap purchased by Entity A is attempting to hedge Entity A's exposure to variability in the net cash flows related to certain revenue inflows and certain expense outflows. Entity A wishes to reduce the risk that an increase in cash outflows due to increases in interest rates will occur without a concurrent increase in cash inflows due to increases in the price of oil per barrel. Those are separate and dissimilar risks that Entity A wishes to hedge with a single derivative instrument. Thus, the hedged forecasted transaction cannot be a group of oil sales inflows and interest payment outflows. This Subtopic is not structured to permit hedge accounting for strategies involving hedges of a spread between revenues and expenses as Entity A is attempting to accomplish. ##### [815-20-55-162](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-162) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ab350dc597e219290d5502bf0e5c257dfd22b1f09c1431608099b60d8a1a7f26 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The oil-linked interest rate cap cannot be designated in a hedge of the variability in interest cash flows attributable to changes in LIBOR above 7 percent. Entity A could not simply define its hedged risk as the risk of changes in cash flows attributable to changes in the three-month LIBOR rate for only those periods when the price of oil per barrel is below a specified dollar amount. ##### [815-20-55-163](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-163) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:64698ad8255f3237926f9b315afc285ef5c25c32ba08ae426a3e9c3497e1aeee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If Entity A wanted to designate the oil-linked interest rate cap as a cash flow hedge of the variability in interest payments on the LIBOR-based variable-rate debt due to changes in interest rates above the contractually specified 7 percent rate in the interest rate cap, Entity A would be required to assess effectiveness whenever interest rates were above that 7 percent rate. Because the cap also has an underlying related to oil prices, there could be times when interest rates will be above the contractually specified interest rate in the cap but the complex option will not result in any cash flows because the selling price of oil is not below the contractually specified price per barrel ($25). In other words, the complex option will be out of the money but Entity A will be required to assess the option's effectiveness in offsetting the increase in interest payments for the effect of the excess of 3-month LIBOR over 7 percent. ##### [815-20-55-164](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-164) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3a7020ebb12a8a7d27ae21c4d18eb44b39e4104e45af2719ef8a0b8ac468edb6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Generally, it would be unlikely that Entity A could conclude that the oil-linked interest rate cap is expected to be highly effective in achieving offsetting cash flows if it is reasonably possible that the oil-linked option will knock out the cash inflows from the derivative instrument. In its assessment of the effectiveness of the hedge of the interest payments on the variable-rate debt, Entity A must consider the likelihood that the interest-rate protection from the oil-linked interest rate cap may be knocked out due to oil prices exceeding the contractually specified amount per barrel and it may not exclude from its assessment of effectiveness those periods when the interest rate protection is knocked out. For those quarters when the cap is knocked out, there are no cash flows from the cap to be used to offset the change in the cash flows on the hedged forecasted transaction. ##### [815-20-55-165](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-165) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c95d21cc40efd1da688e710fb8b7968686a4a9a6e7f2361ffa42abbf49c1fd57 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the unlikely event that Entity A was able to conclude that the relationship was expected to be highly effective (because the complex option was expected to be highly effective for all changes in the three-month LIBOR rate above the contractually specified rate due to the remoteness that the price of oil per barrel would not be below the contractually specified amount over the contractual life of the debt), the complex option could be used as the hedging derivative. ##### [815-20-55-166](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-166) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f032a2081cafdd2e3221c26e306ffea142b897191d0951cd435b587c20e53e6c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The oil-linked interest rate cap cannot be designated in a hedge of the variability in proceeds from the forecasted sale of oil. If Entity A wanted to designate the oil-linked interest rate cap as a cash flow hedge of the risk of overall changes in the sales proceeds from the forecasted sale of oil below the contractually specified price per barrel in the interest rate cap, the hedging relationship would fail to qualify under paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) because the cash inflows from the oil-linked interest rate cap are calculated based on the debt's principal amount and the excess of 3-month LIBOR over 7 percent. Because the cash inflows from the oil-linked interest rate cap are unrelated to the proceeds from oil sales, Entity A could not expect the proposed hedging relationship to be highly effective at achieving offsetting cash flows. ##### [815-20-55-167](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-167) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a05eb840e720351b4efedc71f90f781835279cbe466da3102d48a85440eec035 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-60](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-60). ##### [815-20-55-168](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-168) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:729814dfd258d24086f60029201a5103698a9b30e52bee24c2cacd054d315fb0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A parent entity (Parent A) with the U.S. dollar (USD) as both its functional currency and reporting currency has a subsidiary with a Euro (EUR) functional currency (Subsidiary B). Subsidiary B enters into an unrecognized firm commitment with a third party that will result in Japanese yen (JPY) cash inflows. Concurrent with Subsidiary B entering into the firmly committed contract, Parent A extends a loan to Subsidiary B denominated in JPY, which is funded by a third-party, JPY-denominated borrowing by Parent A. Subsidiary B wishes to designate its JPY-denominated intra-entity loan payable as the hedging instrument in consolidated financial statements in a fair value hedge of foreign currency exposure related to its JPY-denominated unrecognized firm commitment to a third party. ##### [815-20-55-169](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-169) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:179212c2f72e93d183dfdea21dfd4403c1b22553b2a9cd47441ef41698c557eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [830-20-35-1](https://asc.understandingaccounting.org/asc/830/20/#830-20-35-1), at each balance sheet date, Subsidiary B's JPY-denominated intra-entity loan payable would be remeasured from the foreign currency (JPY) into Subsidiary B's functional currency (EUR) at the current EUR/JPY spot rate. Similarly, Parent A's intra-entity JPY-denominated receivable and its third-party JPY-denominated loan payable are remeasured from the foreign currency (JPY) into Parent A's functional currency (USD) at the current USD/JPY spot rate. The transaction gains or losses that are generated from remeasurement into functional currency are recorded in net income. If Subsidiary B designates its JPY-denominated intra-entity loan payable as the hedging instrument in consolidated financial statements, the transaction gains and losses related to the intra-entity loan payable would offset the change in fair value of the firm commitment attributable to changes in foreign exchange rates in the consolidated income statement. ##### [815-20-55-170](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-170) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9d30dd84d6513d8aaeaf99a03c30637896d636a927fcfe3540e4c6441cdf5d33 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, Subsidiary B's JPY-denominated intra-entity payable may be designated as a fair value hedge of the foreign exchange exposure arising from the third-party JPY-denominated firm commitment. Parent A has in place a third-party JPY-denominated borrowing that offsets the exposure of its JPY-denominated intra-entity receivable from Subsidiary B during the period the intra-entity loan receives hedge accounting. ##### [815-20-55-171](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-171) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:43749d7fd66613db9bd01ce114555ce2daee5449d045f52eea34f79cb802673f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-61(b)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-61) in offsetting a subsidiary's exposure on a net basis in which neither leg of the third-party position is in the treasury center's functional currency. ##### [815-20-55-172](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-172) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:6a77db28577f8595946a30cb6efe4e1517dd2ef19d95f2ff0973763db86aa4b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a U.S. dollar (USD) functional currency treasury center was short 390 Euros (EUR) and long 40,684.80 yen (JPY) after netting its exposures obtained from [internal derivatives](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).") and the forward exchange rate between EUR and JPY was EUR 1.00 = JPY 104.32, then the treasury center could enter into a third-party receive EUR 390, pay JPY 40,684.80 contract to offset the exposures. In contrast, if the treasury center was short EUR 390 and long JPY 51,000, then the treasury center would need to enter into 2 third-party contracts with the receive leg of the second third-party position being the treasury center's functional currency. For example, the treasury center could enter into a third-party receive EUR 390, pay JPY 40,684.80 contract to offset the EUR exposure and partially offset the JPY exposure. It would then need to enter into a receive functional currency, pay JPY contract to hedge the remainder of its JPY exposure. ##### [815-20-55-173](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-173) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:8ff3790ee8ff86a7f5ac35ce161ff6d66295993a7a4783c40260f225d0685245 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraphs [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) and [815-20-25-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) to a hedge of a portfolio of fixed-rate financial assets. ##### [815-20-55-174](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-174) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:901b1588c52a74a0a18ef92e4f79c9635b312a0925003ba2286cc28d07852db0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A has a portfolio of seasoned, one to four family, fixed-rate mortgages that it wishes to designate as the hedged item in a fair value hedge of the benchmark interest rate (LIBOR). Each loan within the portfolio has similar settlement terms, is collateralized by property in the same geographic region, and has similar scheduled maturities. The loans are all within a specified interest rate band and are prepayable at par; each of the loans contained in the portfolio is expected to react in a generally proportionate manner to changes in the benchmark interest rate based on calculations performed by Entity A. ##### [815-20-55-175](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-175) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:be46af051850a4aa5be406224ed5fc78c70c2e424d5cdb293af2ce58b9de668b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A enters into a pay-fixed, receive-LIBOR interest rate swap with a fair value of zero at the inception of the hedging relationship. The stated maturity of the interest rate swap is consistent with the stated maturities of the loans. The notional amount of the interest rate swap amortizes based on a schedule that is expected to approximate the principal repayments of the loans (excluding prepayments). There is no optionality included in the interest rate swap. As part of its documented risk management strategy associated with this hedging relationship, on a quarterly basis, Entity A intends to do both of the following: 1. a Assess effectiveness of the existing hedging relationship on a quantitative basis for the past three-month period 2. b Consider possible changes in value of the hedging derivative and the hedged item over the next three months in deciding whether it has an expectation that the hedging relationship will continue to be highly effective at achieving offsetting changes in fair value. ##### [815-20-55-176](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-176) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ea918b78876bdcb0ba242ba4e63008fbe94472ecfda741a3c9ff9cd2138797bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A's portfolio of loans satisfies the requirements of paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) regarding the grouping of similar assets because the portfolio of loans has been defined in a restrictive manner and Entity A determined, by calculation, that each of the loans contained in the portfolio is expected to react in a generally proportionate manner to changes in the benchmark interest rate. Even though certain of the loans may prepay, each loan still may be considered to have the same exposure to prepayment risk because each loan has a similar prepayment option. When aggregating loans in a portfolio, an entity is permitted to consider among other things prepayment history of the loans (if seasoned) and expected prepayment performance in varying interest rate scenarios. ##### [815-20-55-177](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-177) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bbe4ca90fb1186ca88bf277b6d29daec9cd1bbd4dc5bb4cec45364bae95e14d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A's documented hedging strategy meets the requirements of paragraph [815-20-25-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) for a prospective assessment of effectiveness provided the entity established that the hedging relationship is expected to be highly effective in achieving offsetting changes in fair value attributable to the hedged risk during the period that the hedge is designated. ##### [815-20-55-178](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-178) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f133d10db70031dd05b5ebf40b348ecd60bdee81c1d86c9780b16c958546daf9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-79(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) explains that a probable future change in fair value will be more heavily weighted than a reasonably possible future change. For example, Entity A could assign a probability weighting to each possible future change in value of the hedged portfolio. Depending on the level of market interest rates and the expected prepayment rates for the types of loans in the hedged portfolio, Entity A may reach a conclusion that the change in fair value of the swap will be highly effective at offsetting the change in the value of the portfolio of loans, inclusive of the prepayment option. As a result of this analysis, management would conclude that hedge accounting is permitted for the hedging relationship for the next three-month period. Management is required to assess the effectiveness of the existing hedging relationship for the past three-month period. If necessary, the notional amount of the swap in excess of the portfolio balance at the end of each three-month period must be dedesignated to allow high effectiveness to continue in the future. ##### [815-20-55-179](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-179) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1ec5db2256e71b856fa50290ed1d4662bf17762b5e65cb59285f164aaa7f74a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of paragraph [815-20-25-91](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-91) to combinations of options in which either the strike price or the notional amount in either the written option component or the purchased option component can fluctuate over the life of the respective component: 1. a Changes in strike prices (Case A) 2. b Changes in notional amounts (Case B). ##### [815-20-55-180](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-180) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:7bb9c70d788a06f48735c267d74f1e5f957d97077d1f2bec65e5c32cf0535dee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Cases A and B share the following assumptions: 1. a An entity wishes to hedge its forecasted sales of a commodity by entering into a five-year commodity-price collar. 2. b Under the collar, the entity will do both of the following: 1. 1 Purchase commodity-price put option components (a floor) 2. 2 Write commodity-price call option components (a cap). 3. c Each of the alternative collars discussed otherwise meets the criteria established in paragraphs [815-20-25-89 through 25-90](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89) including all of the following: 1. 1 No net premium is received at inception of the combination of options. Paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94) addresses, in part, whether a net premium is received at any point during the life of the combination of options that the strike price or notional amount is changed. 2. 2 The components of the combination of options are based on the same underlying (that is, the same commodity price). 3. 3 The components of the combination of options have the same maturity date. 4. 4 The notional amount of the written option component is not greater than the notional amount of the purchased option component. Paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94) addresses, in part, whether this criterion should be applied to only the entire contractual term to maturity or to some part thereof. ##### [815-20-55-181](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-181) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d96ee66633e74a18da9af1e6d44fa8298afeff7452afe79d09679c40954ad42e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table presents both of the following: 1. a Commodity prices implied by the forward price curve based on market prices 2. b The strike prices of two alternative collars. The minimum prices for each collar represent the strike prices of the purchased put options. The maximum prices for each collar represent the strike prices of the written call options. (Assume that the notional amounts of the two option components are identical and constant over the life of the option components.) - ![](https://asc.understandingaccounting.org/asc-img/GUID-C7B2EFBD-7A92-4C79-8190-91F1F6613FE9-low.gif) (Cents Per Unit) 20X2 20X3 20X4 20X5 20X6 5-Year Average Forward price 100.0 103.9 105.6 106.4 106.7 104.5 Collar 1 Minimum 98.3 98.3 98.3 98.3 98.3 98.3 Maximum 110.6 110.6 110.6 110.6 110.6 110.6 Collar 2 Minimum 108.5 108.5 91.5 91.5 91.5 98.3 Maximum 108.5 108.5 108.5 110.4 117.2 110.6 ##### [815-20-55-182](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-182) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:65c696a893c2ce94ce98a23f5db5c77c86ec914c9d77e9603d937f7a59a64668 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Note that the 5-year averages of the minimum prices (98.3 cents) and the maximum prices (110.6 cents) of the 2 collars are identical and are consistent with the 5-year average implied by the forward price curve. (That is, 104.5 cents equals the average of the 98.3-cent minimum strike price and the 110.6-cent maximum strike price.) No net premium is received at inception for either collar taking into consideration the entire contractual term of the combination of options from inception to maturity. ##### [815-20-55-183](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-183) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:83ef2ffe03824fd8df4883b452f5e45de4e2e83bfd3ba3b35692bd4151f4dc49 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For Collar 2, premiums are received in early periods as consideration for entering into net written options in later periods. Specifically, the (higher-than-average) strike prices in years 20X2 and 20X3 are received (that is, receipt of a net premium) in return for accepting less favorable (lower-than-average) strike prices in years 20X4 through 20X6 (that is, net written options). Thus, at the inception of the hedge and over its life, Collar 2 would be subject to the provisions of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). ##### [815-20-55-184](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-184) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:42d1ec04536db2a4233181cc06cb6a25e256f0130e4cf63a757ff62efa5947e5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table presents the notional amounts of two alternative collars. (Assume that the strike prices of the two collars are identical and constant over the life of the collars.) - ![](https://asc.understandingaccounting.org/asc-img/GUID-24D228EF-24D4-43E8-AAE9-64E6879388CE-low.gif) (Notional Units) 20X2 20X3 20X4 20X5 20X6 Total Notional Amount 5-Year Average Collar 3 Minimum 750 750 750 750 750 " 3,750 " 750 Maximum 750 750 750 750 750 " 3,750 " 750 Collar 4 Minimum " 1,240 " " 1,240 " " 1,240 " 15 15 " 3,750 " 750 Maximum 250 250 250 " 1,500 " " 1,500 " " 3,750 " 750 ##### [815-20-55-185](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-185) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3db3ef66e34eb6b069250475fc75cf364b370e600bc913f3ad643c978ea0f761 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Note that both the sum and average of the notional amounts of the written option component for all periods are not greater than the sum and average of the notional amounts of the purchased option component for all periods. ##### [815-20-55-186](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-186) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f23097a00120be4fe7c2345a82f7bf5a4e08a6b8c54cd55d8391d5907887d45d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For Collar 4, favorable terms are received in early periods (net purchased options) as consideration for entering into net written options in later periods. Specifically, the (higher-than-average) notional amounts on the purchased put option in years 20X2 through 20X4 are received in return for accepting a less favorable notional amount in years 20X5 and 20X6. Thus, at the inception of the hedge and over its life, Collar 4 in Case B would be subject to the provisions of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). ##### [815-20-55-187](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-187) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:0ff3a140b07e96383e16c70793d257bf8c431794f7577b3b13fdaee3ae16d16d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-188](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-188) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ac5bf8034caceea85e110a02407dafcd2ebc8dbc433d178fe832c7b6d7c0b2d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-189](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-189) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3fea44baf4db74f3fdf5237d118a8abc218d75002a26282d1c8fe436b1df4a25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-190](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-190) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1dea1cfc769b1da046c80e0d5d77de7c08167a21f6fea29000848aafc5066570 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-191](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-191) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:978905ba156a8d00ffb6b1230dd2c8d95fe3684f7edaf2aac182984be9cb31cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-192](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-192) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:bab5b95f2cd030658712b5c23a1a3fe85b9f510b5a48a09071b4084f945b2d1c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). ##### [815-20-55-193](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-193) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f0523bddc3f0914b5e35770e85309992fd641bc653d520feb15f70a79e433d0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the application of paragraph [815-20-25-100](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-100) to situations in which the hedged item or hedged forecasted transaction may have a risk exposure that is limited, but the derivative instrument that the entity desires to designate as a hedging instrument does not have comparable limits: 1. a Fair value hedge (Case A) 2. b Cash flow hedge (Case B). ##### [815-20-55-194](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-194) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d56398c1cd3e2039842bc72eec496dd7c18d86cff553c490f8778200bf671f34 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the purposes of both Cases A and B, it is assumed that the shortcut method may not be applied. ##### [815-20-55-195](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-195) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:786c42f55e83f95661b2e68b96f86a2d0591db5be67b8fd41005bc81c38973b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A issues 10-year fixed-rate debt that is callable at the end of the fifth year. It decides to convert the interest payments on the bond from fixed-rate to variable-rate by entering into a 10-year receive-fixed, pay-variable interest rate swap. The interest rate swap is not cancelable at the end of the fifth year. From Entity A's perspective, if interest rates increase, there is a gain on the debt (the liability's fair value decreases) and a loss on the swap (fair value either decreases as an asset or increases as a liability). If interest rates decrease, there is a loss on the debt (the liability's fair value increases) and a gain on the swap (fair value either increases as an asset or decreases as a liability). However, during the first five years, if interest rates decrease, the gain on the swap will exceed the loss on the debt because the debt's fair value change will consider the impact of the call feature, which is in the money when interest rates fall below the stated rate on the debt. Entity A wishes to designate the interest rate swap as the hedging instrument in a fair value hedge of interest rate risk of the fixed-rate debt. The conclusions for Case A and Case B are discussed in paragraph [815-20-55-197](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-197). ##### [815-20-55-196](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-196) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:9cbfa46da0f6d5a66c3cf2f04ebe767d17ee7d95837f8bb44bfe3370ed61e5a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity B issues 10-year, variable-rate debt that reprices based on 6-month LIBOR. The interest rate on the debt is capped at 9 percent. Entity B decides to convert the interest payments on the debt from variable-rate to fixed-rate by entering into a receive-variable, pay-fixed interest rate swap. There is no cap on the variable-rate leg of the interest rate swap. From Entity B's perspective, if interest rates decrease, there will be a cumulative reduction in the expected future cash outflows on the debt and a cumulative reduction in the expected future cash inflows on the swap. If interest rates increase, there will be a cumulative increase in the expected future cash outflows on the debt and a cumulative increase in the expected future cash inflows on the swap. However, if interest rates increase such that the variable rate on the swap would be greater than 9 percent, the cumulative increase in the expected future cash inflows on the swap will exceed the cumulative increase in the expected future cash outflows on the debt because of the interest rate cap on the debt, which is in the money if interest rates increase such that the variable rate on the debt would exceed 9 percent. Entity B wishes to designate the interest rate swap as the hedging instrument in a cash flow hedge of interest rate risk of the variable-rate debt. ##### [815-20-55-197](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-197) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c97c8552dfba07e8dcd5a19eee33b0374461c624521123314f7b54440b3307ba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In both Cases A and B, the entity must assess, based on an appropriate methodology, whether the changes in fair value or cash flows of the interest rate swap could be expected to be highly effective in offsetting changes in fair value or cash flows of the debt attributable to interest rate risk taking into account the effect of the embedded call option (Case A) or the effect of the interest rate cap (Case B). As required by paragraph [815-20-25-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6), the effect of an embedded derivative of the same risk class must be considered in designating a hedge of an individual risk. Therefore, if the options in Cases A and B are expected to be out of the money based on a probability-weighted analysis of the range of possible changes in interest rates, then those options would be expected to have a minimal effect on changes in fair value or cash flows of the debt, and the hedging relationships could meet the requirement for an expectation of high effectiveness. In the case of a fair value hedge of callable debt discussed in Case A, in accordance with paragraph [815-20-25-6B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6B), Entity A may assess hedge effectiveness on the basis of whether the debt will be called at the end of the fifth year because of expected changes in benchmark interest rates, but not because of other factors potentially affecting the exercise of the call feature. Entity A intends to assess hedge effectiveness on this basis. ##### [815-20-55-198](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-198) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:2d88dd75386a0ed833de6a858e05e9c6a7cd74cc5efef3dbef3e1d5610484a67 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-02](https://asc.understandingaccounting.org/updates/asu-2016-02/). ##### [815-20-55-199](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-199) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:df738ad17c485d389f897df72677e57ebde91ccd86370fa13f81d3160d8f33b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example addresses whether the shortcut method in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) can be applied in the circumstances illustrated. This Example has the following assumptions: 1. a Entity A acquires Entity B in a business combination. A business combination is accounted for as the acquisition of one entity by another entity. The acquiring entity, Entity A, records the assets acquired and liabilities assumed at fair value. 2. b [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 3. c At the date of the business combination, Entity A and Entity B both have certain hedging relationships that have met the requirements as discussed beginning in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) and that are being accounted for by the respective entities under the shortcut method of accounting. 4. d At the date of the business combination, the fair value of the hedging swaps in Entity B's hedging relationships is other than zero. ##### [815-20-55-200](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-200) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a8a704e40dd17104964c7f7bbf3fe23068b60f472270ebb7b918a6c2ef6597df Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Unless the applicable hedging relationships meet the requirements in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) at the date of the business combination (which would be highly unlikely because the swap's fair value would rarely be zero at that date) and the combined entity chooses to designate the swaps and the hedged items as hedging relationships to be accounted for under the shortcut method, the acquiror cannot continue to use the shortcut method of accounting for the hedging relationships of the acquiree that were being accounted for by the acquiree under the shortcut method of accounting at the date of the business combination. ##### [815-20-55-201](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-201) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:442fe299d7dbdf6156bd6cac1b84bec27ad4b3023b4bdbd3dcf4395eef9b0ce8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A is acquiring the individual assets and liabilities of Entity B at the date of the business combination and accordingly any preexisting hedging relationships of old Entity B must be designated anew by the combined entity at the date of the business combination in accordance with the relevant requirements of this Subtopic. ##### [815-20-55-202](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-202) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a24ad3bec1cd2fbc9d32a30c2e98acd51e97de0976dcd821bf885b317b900328 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In part, this Example entails a determination of whether the business combination results in a new inception date for the combined entity for hedging relationships entered into by the acquiree before the consummation of the business combination that remain ongoing at the date of the business combination. The concept of acquisition accounting follows the accounting for acquisitions of individual assets and liabilities. That is, the combined entity should account for the assets and liabilities acquired in the business combination consistent with how it would be required to account for those assets and liabilities if they were acquired individually in separate transactions. The acquisition method is based on the premise that in an acquisition, the acquired entity (Entity B) ceases to exist and only the acquiring entity (Entity A) survives. Thus, the postacquisition hedging relationship designated by Entity A is a new relationship that has a new inception date. ##### [815-20-55-203](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-203) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:181ba0a59588a76026061c845ab5c94a0aa7b92ce85c1215c4864413bd54b747 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Even in the unlikely circumstance that the new hedging relationship qualifies for the shortcut method, there would be no continuation of the shortcut method of accounting that had been applied by the acquired entity. ##### [815-20-55-204](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-204) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:84628e9db4a5553b50ff6b7f4e9bd82fc2a0b6af963022d850ec1ac6d3f60c25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-118](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-118). Under the guidance in that paragraph, if a derivative instrument with a five-year term is designated as the hedging instrument in a fair value hedge of a financial asset that also has a five-year term, an entity may base its expectation that the hedging relationship will be highly effective in achieving offsetting changes in fair value for the risk being hedged by considering the possible changes in value occurring only over a shorter period than the life of the derivative instrument, such as over only the first three months of the derivative instrument's five-year life. For example, an entity may specify, in documenting its risk management strategy, that every three months it will do both of the following: 1. a It will assess the effectiveness of the existing hedging relationship for the past three-month period. 2. b It intends to consider possible changes in value of the hedging derivative and the hedged item over the next three months in deciding whether it has an expectation that the hedging relationship will continue to be highly effective at achieving offsetting changes in fair value. ##### [815-20-55-205](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-205) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:872e96750df7f5c1dd1c7c53ebb06353d3a58d073990013756998e48ca8d4873 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-124](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-124). ##### [815-20-55-206](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-206) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a2771da6177da1065cb0cb4ee7ac63b671d249fcd1fd8815a34f0b1f1cf3897d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity XYZ, a U.S. dollar (USD) functional currency entity forecasts the purchase of goods with the payment denominated in pounds sterling (GBP). To hedge the foreign currency exposure from the forecasted purchase, Entity XYZ purchases an at-the-money call option on GBP. The notional amount of the option equals the forecasted value of goods to be purchased, and the option exercise date is the date the purchase consummates. At inception of the hedging relationship the strike price and the forward market exchange rate for GBP 1 are both USD 1.50. The time value component on the option is USD 0.15 per GBP. The foreign currency option in this Example could be effective as a hedging instrument only if effectiveness for that hedging relationship were based solely on either of the following: 1. a Changes in the option's intrinsic value 2. b Changes in the option's entire fair value. ##### [815-20-55-207](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-207) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5a0671230f06e262010bb474e9c5a2e4769d3d38a8fbe2c0d27f404e18f865b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As stated in paragraph [815-20-25-124](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-124), it is inappropriate to assert that only limited risk exposures are being hedged, such as exposures related only to currency-exchange-rate changes above USD 1.65 per GBP. ##### [815-20-55-208](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-208) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:96909656c0f03e4e6b3e9a28dfb9da6b9236aa650fc07d18cd36cffe0d0ac467 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126). ##### [815-20-55-209](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-209) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d7f8eaa60385636082e41695b8585f9cfabc415bb65ec4892be025e8d5de4878 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity forecasts that 1 year later it will purchase 1,000 ounces of gold at then current market prices for use in its operations. The entity wishes to protect itself against increases in the cost of gold above the current market price of $275 per ounce. The entity purchases a 1-year cash-settled at-the-money gold option on 1,000 ounces of gold, paying a premium of $10,000. If the price of gold is above $275 at the maturity (settlement) date, the counterparty will pay the entity 1,000 times the difference. If the price of gold is $275 or below at the maturity date, the contract expires worthless. The option cannot be exercised before its contractual maturity date. The entity designates the purchased option contract as a hedge of the variability in the purchase price (cash outflow) of the 1,000 ounces of gold for prices above $275 per ounce. ##### [815-20-55-210](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-210) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:0dc81bfd2c862ff79de2e3459a0eb9baf0e54a2080bfa37ca558f3bbadb47054 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In assessing the effectiveness of the cash flow hedge, the entity would determine that because the change in the expected future pay-off amount of the purchased option completely offsets the change in the expected future cash flows on the purchase of 1,000 ounces of gold above $275 per ounce, the hedging relationship is expected to be highly effective under paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75). ##### [815-20-55-211](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-211) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:00bf19098338eb9850951cd4ffebf89e6a4acf90ea9d537cd0c56f45e4f2fdd8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The entity would conclude there is perfect effectiveness because all of the following conditions exist: 1. a All the critical terms of the hedging derivative completely match the hedged forecasted transaction. 2. b The strike price of the hedging instrument matches the specified level ($275) beyond which the entity's exposure is being hedged. 3. c The hedging derivative's inflows at expiration completely offset the hedged transaction's outflows for any increase in the price of gold above $275 per ounce. 4. d The hedging option cannot be exercised before its contractual maturity date. ##### [815-20-55-212](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-212) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:268041869b1aa971352adfea608edca13fb78730eb8b1b8128a28cde81cc9a02 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-131](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131). ##### [815-20-55-213](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-213) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ad55b02ea0f566640c0e9f44fb94b0bcfd0d92a1b92a96ac81aaa1da29ae5e91 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity JPN is a Japanese subsidiary of a U.S. entity. Entity JPN's functional currency is the Japanese yen (JPY). Entity JPN has forecasted inventory purchases to be paid in U.S. dollars (USD). As a result, Entity JPN is exposed to changes in the JPY-USD exchange rate: its functional currency cash outflows will increase (loss) if JPY weakens versus USD and decrease (gain) if JPY strengthens versus USD. ##### [815-20-55-214](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-214) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:e346f0018cb8e77f46679115ea8b62f4ff04dc8d7c71070b034dc2b9b2c556ad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity JPN would like to hedge the foreign currency exposure related to the forecasted transaction by entering into a combination of foreign-currency-denominated option contracts designated as a single hedging instrument. ##### [815-20-55-215](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-215) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f6b43ba78056f0c9caf5fb81127fc074a055d90f561b4bdf88552e51da8494f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of this discussion, assume all of the following: 1. a Entity JPN has met the qualifying criteria regarding forecasted transactions eligible for designation as hedged transactions pursuant to paragraph [815-20-25-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) and the options are entered into contemporaneously with the same counterparty and can be transferred independently of each other. 2. b The combination of foreign currency option contracts meets all of the conditions in paragraphs [815-20-25-89 through 25-90](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89) to be considered a net purchased option (that is, considered not to be 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)). ##### [815-20-55-216](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-216) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:dc868397a5a1ccffc6fd2c8fba9915788d3cae7b551107fb6ef31bb1acc85e5e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity JPN employs the following hedging strategy: 1. a The forecasted transaction is estimated at USD 150,000,000. The at-the-money forward rate is JPY 120 per USD 1. 2. b Entity JPN's documented hedge objective is to offset the foreign exchange risk to the functional currency equivalent cash flows at levels above JPY 125/USD 1 and in the range from JPY 113/USD 1 to JPY 108/USD 1. In the range JPY 113/USD 1 to JPY 125/USD 1 and at levels below JPY 108/USD 1, Entity JPN chooses not to offset the foreign exchange risk to the functional currency equivalent cash flows. 3. c To implement this hedge objective, Entity JPN enters into all three of the following option contracts and jointly designates them as the hedging instrument: 1. 1 Option 1. One purchased option that gives Entity JPN the right to purchase USD 150,000,000 at an exchange rate of JPY 125/USD 1. Premium paid: USD 1,536,885. 2. 2 Option 2. One sold (written) option that, if exercised, obligates Entity JPN to purchase USD 150,000,000 at an exchange rate of JPY 113/USD 1. Premium received: USD 1,536,885. 3. 3 Option 3. One purchased option that gives Entity JPN the right to sell USD 150,000,000 at an exchange rate of JPY 108/USD 1. Premium paid: USD 737,705. ##### [815-20-55-217](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-217) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:10d0e6b62a30adcdeb444f3ad614302f20b059d06f6f8989aad92697a49f4e55 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The time value of the combination of options is to be excluded from the assessment of effectiveness and, therefore, effectiveness is based only on changes in intrinsic value related to the combination of options. ##### [815-20-55-218](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-218) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:ee585a9c76a5d723be0154475a2cccc8253e1b446d5168b5d073007fef4584bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The purpose of Option 1 is to protect Entity JPN when the JPY-USD exchange rate increases above JPY 125/USD 1. As the JPY-USD exchange rate increases, Entity JPN will be required to purchase the USD 150,000,000 inventory at a greater JPY-equivalent cost. As the JPY-USD exchange rate increases above JPY 125/USD 1, the intrinsic value of the option increases as the option is increasingly in the money. That increase in the option's intrinsic value is expected to offset the increase in the JPY-equivalent expenditure on the forecasted transaction. ##### [815-20-55-219](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-219) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a7116e9221ddfe472afc7f20978de5e30d7f1bf3b82227db7f66d35881c946c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity JPN also writes an option (Option 2) that obligates Entity JPN to purchase USD from the counterparty at an exchange rate of JPY 113/USD 1. The counterparty will exercise the option whenever the JPY-USD exchange rate is below JPY 113/USD 1. As the JPY-USD exchange rate decreases, Entity JPN will be required to purchase the USD 150,000,000 inventory at a lesser JPY-equivalent cost. As the JPY-USD exchange rate decreases below JPY 113/USD 1, Entity JPN's losses related to increases in the intrinsic value of the written option are expected to offset the decrease in the JPY-equivalent expenditure on the forecasted transaction. ##### [815-20-55-220](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-220) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:3be4de4fafac9f6126169efb074ed55fa5215a355cb8382a34e647705ff6386e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity JPN also purchases an option to sell USD (Option 3) for a notional amount equal to the notional of the written option (Option 2) with a strike price of JPY 108/USD 1. Entity JPN will exercise Option 3 whenever the JPY-USD exchange rate is below JPY 108/USD 1. When the exchange rate is below JPY 108/USD 1, although Entity JPN will be obligated to make a payment in relation to Option 2, it will also receive a payment in relation to Option 3. As a result of purchasing Option 3, Entity JPN will be exposed to exchange rate fluctuations on Option 2 only when the exchange rate is between JPY 113/USD 1 and JPY 108/USD 1. Hence, with Options 2 and 3, Entity JPN has effectively limited its hedge offset to changes in cash flows on the forecasted item to levels between JPY 113/USD 1 and JPY 108/USD 1. Changes in the exchange rate below JPY 108/USD 1 result in no change in the intrinsic value of the combination of options because the change in Option 2 offsets the change in Option 3. However, when the exchange rate is below JPY 108/USD 1, the combination of options has an intrinsic value other than zero. ##### [815-20-55-221](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-221) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1b02433605ed8a7f33fb0be6c45d106cb348b643272b950151ca9af94795dca8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In summary, potential changes in intrinsic value related to this combination option hedge construct (Options 1, 2, and 3) would limit the hedge offset to corresponding changes in functional currency cash flows on the forecasted transaction only at levels above JPY 125/USD 1 and in the range JPY 108/USD 1 to JPY 113/USD 1, consistent with Entity JPN's documented hedge objective. ##### [815-20-55-222](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-222) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5a4933144604427afea160b8e0b105f4dc8c4a16323bb1c844b32077c8864951 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The cash flow hedging relationship in this Example involving a combination of options may be considered effective at offsetting the change in cash flows due to foreign currency exchange rate movements related to the forecasted transaction. Specifically, Entity JPN may assess the effectiveness of the hedge based only on changes in the underlying that cause a change in the intrinsic value of the combination of options. Thus, in that case, Entity JPN would assess effectiveness of the hedge only when the JPY-USD exchange rate is above JPY 125/USD 1 and between JPY 113/USD 1 and JPY 108/USD 1. Likewise, Entity JPN's assessment would exclude changes in the JPY-USD exchange rate between JPY 113/USD 1 and JPY 125/USD 1 and below JPY 108/USD 1. ##### [815-20-55-223](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-223) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b86bf7828bb8e2e43c50e2751417b772ba2aa93413e8e62a83a38b5383d69da5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The combination of options used by Entity JPN as a hedging instrument is deemed to be a net purchased option based on the provisions of this Subtopic. Therefore, the hedging relationship avoids being subject to the hedge effectiveness test for written options in paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). ##### [815-20-55-224](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-224) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:203dfe939ed609d2f7ec141af16335fd8f7d43ceb6fddbbc05357a4e5c040460 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In particular, as it relates to paragraph [815-20-25-89(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89), the aggregate premium (that is, the time values) for the three options comprising the hedging instrument results in Entity JPN paying a net premium. ##### [815-20-55-225](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-225) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:5950da5f96052255849b792b7abc65c0c85903a9c5e3ab059d396722309aa476 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The evaluation of whether a net premium has been received under paragraph [815-20-25-89(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89) must include consideration of only the time value components of the options designated as the hedging instrument. That evaluation must not include the intrinsic value, if any, of the options. ##### [815-20-55-226](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-226) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:89ca97e6c6eac6e755b80cec7930b174fed0ad79165a2bf5030e00cf58c4bac9 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/). ##### [815-20-55-227](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-227) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:29adedcf7986f9922025e512f90b2ef137e97868b486740ef359d4030d7d78a7 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/). ##### [815-20-55-228](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-228) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:2a7be279108579ade66af4a3684ce5dfd7c4c98e389bfee7b327b00967f904d9 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/). ##### [815-20-55-229](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-229) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:c6edcb9a9362e54d1714c221cb694cb830c199e53132a7b9e2e5a3b994965c98 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/). ##### [815-20-55-230](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-230) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:61271d05a478087b861392b4c01bfc58fc53da290daf5b608765d114c4fd412e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-95](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-95). ##### [815-20-55-231](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-231) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f2ad82f1f007afe116e392f12964889013409934cc535bebeb9029eb5f2223fd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity X has LIBOR-indexed floating-rate debt. To hedge its exposure to variability in expected future cash outflows attributable to changes in [LIBOR swap rate](https://asc.understandingaccounting.org/glossary/l/#libor-swap-rate "See London Interbank Offered Rate (LIBOR) Swap Rate.") (the contractually specified interest rate), it enters into an interest rate collar with a bank when the current LIBOR swap rate is 6 percent. The collar also is indexed to LIBOR and consists of a purchased cap with the strike rate equal to 8 percent and a written floor with the strike rate equal to 5 percent. The purchased cap goes into effect when LIBOR increases above 8 percent, and the written floor goes into effect when LIBOR decreases below 5 percent. Thus, the interest collar has the effect of limiting the interest rate of the floating-rate debt to a range between 5 percent and 8 percent. On the basis of market conditions as of the collar transaction date, Entity X received a net premium from the bank. ##### [815-20-55-232](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-232) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:a5ed8c176ddb20a94df9ad86bb86f4fea9990feb1d7bd59b63a5e27cec31a57f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraphs [815-20-25-88 through 25-90](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88) , the combination of options in the collar in this Example is a net written option from Entity X's perspective. Therefore, the written-option test in paragraphs [815-20-25-94 through 25-95](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94) must be applied to determine whether the hedging relationship between the debt and the collar qualifies for cash flow hedge accounting. That test requires that the combination of the hedged item and the written option provides at least as much potential for favorable cash flows as exposure to unfavorable cash flows for all possible percentage changes (from zero percent to 100 percent) in the LIBOR index. ##### [815-20-55-233](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-233) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:f5f84374d4aabfb6c4a02c3bbaf968a71b74fe70c9103b458fb52a6830501df9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table shows the calculation of the favorable cash flows and unfavorable cash flows for LIBOR changes of 50 percent. - ![](https://asc.understandingaccounting.org/asc-img/GUID-8A651CB5-BCDE-4D3F-B58D-188020561318-low.gif) Potential Cash Flows of the Combination of the Hedged Item and the Net Written Option If LIBOR Moves Each Direction by the Same Percentage LIBOR at Inception LIBOR Increase 50% "LIBOR Decrease 50%" Cash outflows on LIBOR-indexed debt 6.00% 9.00% 3.00% Cash outflows on written floor 0.00 0.00 2.00 Less: Cash inflows on purchased cap 0.00 1.00 0.00 Net cash flow (outflows + / inflows -) 6.00% 8.00% 5.00% Unfavorable Favorable Change in cash flows of combination from inception (in basis points) 200 -100 "Percentage change in cash flows of combination from inception" 33.33% -16.67% ##### [815-20-55-234](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-234) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:537916118ab2ddba670949c2c732a257b053ba1bad7dc32d577c4e411d04b747 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The calculations in the table in paragraph [815-20-55-233](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-233) demonstrate that for a 50 percent fluctuation in the LIBOR rate, the collar would fail the written-option test in paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94) because a 50 percent favorable change in LIBOR (that is, a decrease) would not provide at least as much favorable cash flows as unfavorable cash flows that would result from a 50 percent unfavorable change in LIBOR (that is, an increase). Therefore, the combination of options would not be an eligible hedging instrument. ##### [815-20-55-235](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-235) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:d6abda3cf37af160890fa8df707d621a603938cd5919145d330f73211929f9ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). ##### [815-20-55-236](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-236) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:de1c5a6507d6056139089a68ba16de9eecad37d1b5f80f52a060038ed30a57b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On December 31, 20X0, an entity intends to purchase 1,000 barrels of crude oil in December 20X4. The entity decides to hedge changes in the price of the crude oil by purchasing an at-the-money call option on 1,000 barrels of crude oil. The entity purchases the option on December 31, 20X0, with an initial premium of $9,250, a strike price of $75, and a maturity date of December 31, 20X4. The entity designates the option as the hedging instrument in a cash flow hedge of a forecasted purchase of crude oil. ##### [815-20-55-237](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-237) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:b6495478bb8ec0b9afcd654e4f12f49fbb7202bb52280b11f79b61de6e969e27 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The entity elects to exclude the time value of the option from the assessment of effectiveness in accordance with paragraph [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82) and applies the amortization approach for recognizing excluded components in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). The entity applies a straight-line amortization method and, based on the initial option premium of $9,250, the entity determines an annual amortization amount of $2,313. The entity records all changes in fair value over the term of the derivative in other comprehensive income and records amortization in earnings each period with an offsetting entry to other comprehensive income. The changes in value of the option over the life of the hedging relationship are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-EA6D23FC-99ED-4761-B992-12707FB116D6-low.gif) 12/31/20X1 12/31/20X2 12/31/20X3 12/31/20X4 Ending market price of crude oil $77 $76 $74 $81 Ending fair value of option: Time value " 7,500 " " 5,500 " " 3,000 " - Intrinsic value " 2,000 " " 1,000 " - " 6,000 " Total " $9,500 " " $6,500 " " $3,000 " " $6,000 " Change in time value " $(1,750)" " $(2,000)" " $(2,500)" " $(3,000)" Change in intrinsic value " 2,000 " " (1,000)" " (1,000)" " 6,000 " Total current-period gain (loss) on derivative $250 " $(3,000)" " $(3,500)" " $3,000 " ##### [815-20-55-238](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-238) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:55.855Z to 2026-09-10T01:36:55.855Z Record version: sha256:1c17d3a8ec9221de7b366617570e02350d46b7df55ac60ee15f166810143c0c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On December 31, 20X4, the entity purchases 1,000 barrels of crude oil, and the option expires with an intrinsic value of $6,000. This amount will remain in accumulated other comprehensive income until the commodity is sold in 20X5. The journal entries over the life of the hedging relationship are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-E051C948-6846-4032-8434-8FE7ECC21AC4-low.gif) "December 31, 20X0" Derivative asset " $9,250 " Cash " $9,250 " To record the derivative asset based on the initial premium. "December 31, 20X1" Derivative asset $250 Other comprehensive income $250 To record the change in value of the derivative in other comprehensive income. Cost of goods sold " $2,313 " Other comprehensive income " $2,313 " To record amortization of the excluded amount. "December 31, 20X2" Other comprehensive income " $3,000 " Derivative asset " $3,000 " To record the change in value of the derivative in other comprehensive income. Cost of goods sold " $2,313 " Other comprehensive income " $2,313 " To record amortization of the excluded amount. "December 31, 20X3" Other comprehensive income " $3,500 " Derivative asset " $3,500 " To record the change in value of the derivative in other comprehensive income. Cost of goods sold " $2,313 " Other comprehensive income " $2,313 " To record amortization of the excluded amount. "December 31, 20X4" Derivative asset " $3,000 " Other comprehensive income " $3,000 " To record the change in value of the derivative in other comprehensive income. Cost of goods sold " $2,311 " a Other comprehensive income " $2,311 " a To record amortization of the excluded amount. "July 1, 20X5" Other comprehensive income " $6,000 " Cost of goods sold " $6,000 " "Upon sale of commodity, to record intrinsic value to cost of goods sold." (a) $2 rounding adjustment