# ASC 815-20: Derivatives and Hedging — Hedging—General Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/20/) 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): 2026-09-10T01:36:33.249Z to 2026-09-10T01:37:01.175Z Record version: sha256:af457e7f721c98d91db029e3e95409b1f8dce35ec1b3ae54cfb018b0da89aab8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20: Derivatives and Hedging — Hedging—General ### Machine-generated study aids ```json { "summary": "ASC 815-20 sets the general \"gatekeeping\" rules for hedge accounting that apply to all three hedge types — fair value, cash flow, and net investment hedges. It requires formal designation and documentation at hedge inception (risk management objective, hedging instrument, hedged item, hedged risk, and the effectiveness assessment method), and it specifies which items and transactions may be designated as hedged items, which risks may be designated as the hedged risk, which instruments may be hedging instruments, and how effectiveness must be assessed. Items outside those criteria (e.g., equity method investments, most intra-entity transactions, an entity's own equity) simply cannot be hedged for accounting purposes.", "key_points": [ "Hedge accounting requires concurrent, formal documentation at inception of the hedging relationship, the risk management objective and strategy, the hedging instrument, the hedged item or transaction, the nature of the hedged risk, and the method of assessing effectiveness (815-20-25-3(b)); without it an entity could retroactively engineer a desired accounting result.", "An initial prospective effectiveness assessment must be quantitative (dollar-offset or regression) unless an exception applies — e.g., shortcut method, matched critical terms, the private-company simplified approach, or spot/forward-rate net investment methods (815-20-25-3(b)(2)(iv)(01)) — and is deemed concurrent if completed by the earliest of the dates listed in (02).", "For fair value hedges the hedged item must be a specifically identified recognized asset or liability, unrecognized firm commitment, or portfolio of similar items sharing the hedged risk, and must present an exposure that could affect earnings (815-20-25-12); a 'specific portion' may be a percentage, selected contractual cash flows, an embedded put/call, or a lessor's residual value.", "For financial items the hedged risk may be overall fair value, benchmark interest rate risk, foreign exchange risk, or credit risk (or combinations), while for nonfinancial items generally only overall fair value or FX may be hedged — crude oil price cannot be the hedged risk for gasoline (815-20-25-12(e)–(f)).", "Cash flow hedges require the forecasted transaction to be specifically identified, probable, with an external party (limited intra-entity FX exceptions), and to present cash flow variability that could affect earnings (815-20-25-15); 'probable' requires significantly greater likelihood than 'more likely than not' (815-20-25-16(e)).", "The portfolio layer method permits designating a hedged layer of a closed portfolio of financial assets or beneficial interests if the entity documents an analysis supporting that the layer will be outstanding for the hedge period, assuming prepayments and defaults are applied first to the unhedged portion (815-20-25-12A).", "Certain items are specifically ineligible as hedged items: equity method investments, noncontrolling interests, transactions with stockholders as stockholders (treasury stock purchases, dividends), most intra-entity transactions, the entity's own equity instruments, and interest rate risk on held-to-maturity securities (815-20-25-43)." ], "categories": [ "Derivatives and hedging", "Financial instruments", "Foreign currency", "Recognition" ], "audience_level": "advanced", "student_note": "This is the qualification checklist for hedge accounting — most failures in practice are documentation failures, not economic ones, because documentation must be complete and concurrent at inception and cannot be created after the fact. A common misunderstanding is that any economic hedge qualifies: the hedged risk must be one the Codification specifically permits (for nonfinancial items, generally total price or FX risk, not an ingredient's price), and some items (equity method investees, own equity, dividends, most intra-entity transactions) are flatly ineligible.", "related_topics": [ "815-10", "815-25", "815-30", "815-35", "815-15", "830-20" ], "key_concepts": [ "hedge designation and documentation", "hedge effectiveness assessment", "hedged item eligibility", "forecasted transaction probability", "benchmark interest rate", "portfolio layer method", "contractually specified component", "functional currency exposure" ] } ``` Source downloaded (UTC): 2026-09-10T01:36:33.249Z to 2026-09-10T01:36:33.249Z Record version: sha256:2d2861da5a042ef1cd32ac7ec3c3a90e8c7ea03c8971c824e319e4dca1366efc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/815/20/#00-status) SEC content: no ##### [815-20-00-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:33.249Z to 2026-09-10T01:36:33.249Z Record version: sha256:e1571f9fff48de200baeb2c75796d340cf9b16cf965f70f4332cdd13869f9ed0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Auction Rate NotesAmendedAccounting Standards Update No. 2017-1208/28/2017
Beneficial InterestsAddedAccounting Standards Update No. 2022-0103/28/2022
Contractually Specified ComponentSupersededAccounting Standards Update No. 2025-0911/25/2025
Contractually Specified ComponentAddedAccounting Standards Update No. 2017-1208/28/2017
Credit RiskAmendedAccounting Standards Update No. 2017-1208/28/2017
Credit RiskAmendedAccounting Standards Update No. 2010-0802/02/2010
Fair Value HedgeAddedAccounting Standards Update No. 2017-1208/28/2017
Fed Funds Effective Rate Overnight Index Swap RateAddedAccounting Standards Update No. 2018-1610/25/2018
Fed Funds Effective Swap Rate (or Overnight Index Swap Rate)SupersededAccounting Standards Update No. 2018-1610/25/2018
Fed Funds Effective Swap Rate (or Overnight Index Swap Rate)AddedAccounting Standards Update No. 2013-1007/17/2013
Financial InstrumentAmendedAccounting Standards Update No. 2024-0203/29/2024
Financial Statements Are Available to Be IssuedAddedAccounting Standards Update No. 2014-0301/16/2014
Hedged LayerAddedAccounting Standards Update No. 2022-0103/28/2022
Interest Rate RiskAmendedAccounting Standards Update No. 2017-1208/28/2017
LIBOR Swap RateAmendedAccounting Standards Update No. 2018-1610/25/2018
London Interbank Offered Rate (LIBOR) Swap RateAddedAccounting Standards Update No. 2018-1610/25/2018
London Interbank Offered Rate Swap RateSupersededAccounting Standards Update No. 2018-1610/25/2018
Not-for-Profit EntityAddedAccounting Standards Update No. 2014-0301/16/2014
Other Comprehensive IncomeAddedMaintenance Update 2014-20 (PDF)09/29/2014
Private CompanyAddedAccounting Standards Update No. 2014-0301/16/2014
Probable (2nd def.)AddedAccounting Standards Update No. 2015-1006/12/2015
Public Business EntityAmendedMaintenance Update 2017-06 (PDF)04/07/2017
Public Business EntityAmendedMaintenance Update 2016-11 (PDF)06/27/2016
Public Business EntityAddedAccounting Standards Update No. 2014-0301/16/2014
Readily Convertible to CashAmendedAccounting Standards Update No. 2024-0203/29/2024
Secured Overnight Financing Rate (SOFR) Overnight Index Swap RateAddedAccounting Standards Update No. 2018-1610/25/2018
Securities Industry and Financial Markets Association (SIFMA) Municipal Swap RateAddedAccounting Standards Update No. 2017-1208/28/2017
Spot RateAddedAccounting Standards Update No. 2014-0603/14/2014
TransactionAmendedAccounting Standards Update No. 2024-0203/29/2024
815-20-05-1AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-05-2AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-05-3 through 05-10
SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-05-4AmendedAccounting Standards Update No. 2012-0410/01/2012
815-20-15-1AmendedAccounting Standards Update No. 2019-0404/25/2019
815-20-25-1AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-2AmendedAccounting Standards Update No. 2015-1006/12/2015
815-20-25-3AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-3AmendedAccounting Standards Update No. 2022-0103/28/2022
815-20-25-3AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-3AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-6AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-6AmendedAccounting Standards Update No. 2013-1007/17/2013
815-20-25-6AAmendedAccounting Standards Update No. 2018-1610/25/2018
815-20-25-6AAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-6AAmendedAccounting Standards Update No. 2013-1007/17/2013
815-20-25-6BAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-8AmendedAccounting Standards Update No. 2025-0709/29/2025
815-20-25-12AmendedAccounting Standards Update No. 2019-0404/25/2019
815-20-25-12AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-12AAmendedAccounting Standards Update No. 2022-0103/28/2022
815-20-25-12AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-12BAddedAccounting Standards Update No. 2022-0103/28/2022
815-20-25-15AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-15AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-15AmendedAccounting Standards Update No. 2015-1006/12/2015
815-20-25-15AmendedAccounting Standards Update No. 2012-0410/01/2012
815-20-25-15AmendedAccounting Standards Update No. 2010-0701/28/2010
815-20-25-15AmendedAccounting Standards Update No. 2010-0802/02/2010
815-20-25-16AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-17AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-19AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-19AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-19BAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-22ASupersededAccounting Standards Update No. 2025-0911/25/2025
815-20-25-22AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-22BSupersededAccounting Standards Update No. 2025-0911/25/2025
815-20-25-22BAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-22CAddedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-28AmendedAccounting Standards Update No. 2016-0101/05/2016
815-20-25-29AmendedAccounting Standards Update No. 2014-0603/14/2014
815-20-25-36AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-37AmendedAccounting Standards Update No. 2016-0101/05/2016
815-20-25-43AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-43AmendedAccounting Standards Update No. 2016-0101/05/2016
815-20-25-46BAmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-46BAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-50AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-51AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-54AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-71AmendedAccounting Standards Update No. 2016-0101/05/2016
815-20-25-72AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-73AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-77AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-77AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-79AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-79AmendedAccounting Standards Update No. 2024-0203/29/2024
815-20-25-79 through 25-86
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-79AAmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-79AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-79BAddedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-83AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-83BAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-84AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-84AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-88AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-25-102AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-104 through 25-106
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-104AmendedAccounting Standards Update No. 2011-0405/12/2011
815-20-25-111AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-113AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-117AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-117A through 25-117D
AddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-118AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-118AAmendedAccounting Standards Update No. 2022-0103/28/2022
815-20-25-118AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-119AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-119AmendedAccounting Standards Update No. 2014-0301/16/2014
815-20-25-125AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-129AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-129AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-131ASupersededAccounting Standards Update No. 2016-0303/07/2016
815-20-25-131A through 25-131E
AddedAccounting Standards Update No. 2014-0301/16/2014
815-20-25-131AA through 25-132SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-25-131AAAddedAccounting Standards Update No. 2016-0303/07/2016
815-20-25-131ABAddedAccounting Standards Update No. 2016-0303/07/2016
815-20-25-133 through 25-143
AddedAccounting Standards Update No. 2017-1208/28/2017
815-20-25-139AmendedAccounting Standards Update No. 2022-0103/28/2022
815-20-25-139AmendedAccounting Standards Update No. 2019-0404/25/2019
815-20-25-143AmendedAccounting Standards Update No. 2019-0404/25/2019
815-20-35-1AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-35-1AmendedAccounting Standards Update No. 2016-0101/05/2016
815-20-35-2AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-35-2A through 35-2G
AddedAccounting Standards Update No. 2017-1208/28/2017
815-20-35-6AmendedMaintenance Update 2014-20 (PDF)09/29/2014
815-20-35-7SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-35-8AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-35-9AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-35-11AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-35-12AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-35-13SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-35-16AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-35-17SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-35-19AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-45-1SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-45-1A through 45-1D
AddedAccounting Standards Update No. 2017-1208/28/2017
815-20-45-1CCAddedAccounting Standards Update No. 2022-0103/28/2022
815-20-45-3AddedAccounting Standards Update No. 2017-1208/28/2017
815-20-45-4AddedAccounting Standards Update No. 2022-0103/28/2022
815-20-50-1AmendedAccounting Standards Update No. 2009-1612/23/2009
815-20-55-2AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-4AAmendedAccounting Standards Update No. 2022-0103/28/2022
815-20-55-4AAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-5 through 55-8
SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-55-6AmendedAccounting Standards Update No. 2012-0410/01/2012
815-20-55-11AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-11AmendedAccounting Standards Update No. 2016-0202/25/2016
815-20-55-12AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-14AAmendedAccounting Standards Update No. 2022-0103/28/2022
815-20-55-14AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-14BAddedAccounting Standards Update No. 2022-0103/28/2022
815-20-55-15AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-15A through 55-15D
AddedAccounting Standards Update No. 2022-0103/28/2022
815-20-55-17AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-17AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-18A through 55-18DAddedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-19AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-19AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-23AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-23AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-23A through 55-23D
AddedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-24AmendedAccounting Standards Update No. 2016-1912/14/2016
815-20-55-26A through 55-26E
SupersededAccounting Standards Update No. 2025-0911/25/2025
815-20-55-26A through 55-26E
AddedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-27 through 55-32
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-33AAmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-33AAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-33BAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-33CSupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-55-33DSupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-55-33EAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-33FSupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-55-33GAddedAccounting Standards Update No. 2019-0404/25/2019
815-20-55-38AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-39SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-55-40AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-41 through 55-43
SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-55-44AmendedAccounting Standards Update No. 2016-1912/14/2016
815-20-55-44AAmendedAccounting Standards Update No. 2016-1912/14/2016
815-20-55-44CAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-46AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-50AmendedMaintenance Update 2014-07 (PDF)03/17/2014
815-20-55-51AmendedMaintenance Update 2014-07 (PDF)03/17/2014
815-20-55-51AmendedAccounting Standards Update No. 2014-0603/14/2014
815-20-55-54 through 55-56
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-54AmendedAccounting Standards Update No. 2014-0301/16/2014
815-20-55-56AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-56AmendedAccounting Standards Update No. 2016-0503/10/2016
815-20-55-56AAddedAccounting Standards Update No. 2016-0503/10/2016
815-20-55-62AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-62AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-64AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-68AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-69AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-71AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-73SupersededAccounting Standards Update No. 2016-0202/25/2016
815-20-55-75AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-79AAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-79AAmendedAccounting Standards Update No. 2014-0301/16/2014
815-20-55-79BAmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-79BAmendedAccounting Standards Update No. 2014-0301/16/2014
815-20-55-79C through 55-79ADAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-79PAmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-79RAmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-80AAddedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-86AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-88AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-89AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-89AAddedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-89BAddedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-90AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-91AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-92AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-94AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-94AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-95AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-96AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-96AAddedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-97AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-98AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-98AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-99AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-99A through 55-99E
AddedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-103 through 55-105
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-107 through 55-110
AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-115AmendedAccounting Standards Update No. 2025-0709/29/2025
815-20-55-116AmendedAccounting Standards Update No. 2025-0709/29/2025
815-20-55-117AmendedAccounting Standards Update No. 2016-0101/05/2016
815-20-55-118 through 55-122
SupersededAccounting Standards Update No. 2016-0101/05/2016
815-20-55-119AmendedAccounting Standards Update No. 2012-0410/01/2012
815-20-55-123AmendedAccounting Standards Update No. 2016-0101/05/2016
815-20-55-126AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-129AmendedAccounting Standards Update No. 2025-0911/25/2025
815-20-55-129AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-131AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-135AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-149AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-155AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-175AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-178AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-187 through 55-192
SupersededAccounting Standards Update No. 2016-0101/05/2016
815-20-55-197AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-198SupersededAccounting Standards Update No. 2016-0202/25/2016
815-20-55-199AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-204AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-211AmendedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-226 through 55-229
SupersededAccounting Standards Update No. 2017-1208/28/2017
815-20-55-230 through 55-238
AddedAccounting Standards Update No. 2017-1208/28/2017
815-20-55-238AmendedMaintenance Update 2017-14 (PDF)09/13/2017
815-20-65-1AddedAccounting Standards Update No. 2013-1007/17/2013
815-20-65-2AddedAccounting Standards Update No. 2016-0503/10/2016
815-20-65-3AmendedAccounting Standards Update No. 2019-1011/15/2019
815-20-65-3AmendedAccounting Standards Update No. 2019-0404/25/2019
815-20-65-3AmendedMaintenance Update 2017-14 (PDF)09/13/2017
815-20-65-3AddedAccounting Standards Update No. 2017-1208/28/2017
815-20-65-4AddedAccounting Standards Update No. 2018-1610/25/2018
815-20-65-5AddedAccounting Standards Update No. 2019-0404/25/2019
815-20-65-6AddedAccounting Standards Update No. 2022-0103/28/2022
815-20-65-7AddedAccounting Standards Update No. 2025-0911/25/2025
Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:5e9fc7b0585de6caa272ad9548e9f8850f2be0c7821518f653f35bfc891c29bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/815/20/#05-overview-and-background) SEC content: no ##### [815-20-05-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:d71cd37786a3f2f28cabc770ba0dde1b1f6c9329e5a35457a961b63bed47fc0d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Derivatives and Hedging Topic includes several Subtopics on hedging activities: 1. a Hedging—General (Subtopic 815-20) 2. b Fair Value Hedges (Subtopics 815-20 and 815-25) 3. c Cash Flow Hedges (Subtopics 815-20 and 815-30) 4. d Net Investment Hedges (Subtopics 815-20 and 815-35). ##### [815-20-05-2](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:3dd37ef6d9059f3546498acad63d9da1f7ce183eacf2e1ac144f7aa5becdce76 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides general guidance applicable to all three types of hedging relationships: [fair value hedges](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."), [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."), and hedges of a net investment in a foreign operation. This Subtopic includes the basic guidance for qualifying for hedge accounting such as hedge documentation requirements, which types of risks are eligible for hedge accounting, and which items may or may not be designated as hedged items and hedging instruments. This Subtopic also provides guidance on hedge effectiveness criteria and assessments of hedge effectiveness. Financial statement presentation of the change in the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of a qualifying hedging instrument also is covered in this Subtopic. such as subsequent measurement and dedesignation of a hedging relationship. Implementation guidance and examples specific to fair value, cash flow, and net investment hedges are included in both Subtopic 815-20 and the specific Subtopics for each type of hedging relationship. Disclosure guidance for all hedging relationships is included in Section 815-10-50, and disclosure examples are included in Section 815-10-55. Incremental disclosure guidance for cash flow hedges is provided in Section 815-30-50. ##### [815-20-05-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:f89cb9270c38a2a880788655daa5dda1797ed2a687008ea269245d90c7e2db86 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/). ##### [815-20-05-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:672eebacf5b955c2d2a1d747abb5d5be1c5fc3cfde5d89688607976d2296737b 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/). ##### [815-20-05-5](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:d3be6c5fab85377991c81757a2d4ad51ed329c9f752216c491966672b6a190ca 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/). ##### [815-20-05-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:46bcdd043f0ec3031761efdbd452852f05db35c4bb6691b5a95d7127d3f2dcf3 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/). ##### [815-20-05-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:8929838dd80aac02a27ec25e9c572db418e7c0293483722b378dd329e2b86e37 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/). ##### [815-20-05-8](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:8e93bf80dd0dc74f404d392e8da7fd7b4f55162e5ce64368ca285bee39ecc747 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/). ##### [815-20-05-9](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:133b39b5c2d12ba55e8797910d3c6674d56c73d42a23e4099e4a283f7e0d6101 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/). ##### [815-20-05-10](https://asc.understandingaccounting.org/asc/815/20/#815-20-05-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:36.626Z to 2026-09-10T01:36:36.626Z Record version: sha256:f224eba8e70abd40266a29e86aec210fa6ec2f5e83bf871fd680c07789763812 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/). Source downloaded (UTC): 2026-09-10T01:36:38.819Z to 2026-09-10T01:36:38.819Z Record version: sha256:6c1ba0f71948097318dc9dd5c9454424c366e4ec8c0c798ae83ea059ac048111 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-10: 10 Objectives [Read section](https://asc.understandingaccounting.org/asc/815/20/#10-objectives) SEC content: no ##### [815-20-10-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-10-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:38.819Z to 2026-09-10T01:36:38.819Z Record version: sha256:1835044d4b19fbb2eb1108c1710e6d5dc748e2a7bf61fad3e0d8e1e1cee8ea77 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-10-10-1](https://asc.understandingaccounting.org/asc/815/10/#815-10-10-1) states that one cornerstone underlying the guidance in this Topic is that special accounting for items designated as being hedged should be provided only for qualifying items. That paragraph explains that one aspect of qualification should be an assessment of the expectation of effective offsetting changes in [fair values](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") or cash flows during the term of the hedge for the risk being hedged. Source downloaded (UTC): 2026-09-10T01:36:41.696Z to 2026-09-10T01:36:41.696Z Record version: sha256:e6a00077200777a5e136e4fc4a44cd9d382f13838c9cfdb081d9b8df0a51f20f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/815/20/#15-scope-and-scope-exceptions) SEC content: no #### Entities ##### [815-20-15-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:41.696Z to 2026-09-10T01:36:41.696Z Record version: sha256:030d1d91541cf021b6a1bcf99e0d2198a9a5baad4a2ea9e4c8389183a369b074 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic applies to all entities, with the following exceptions: 1. a Entities that do not report earnings separately are not permitted to use cash flow hedge accounting as described in this Subtopic or Subtopic 815-30 on cash flow hedges. 2. b Entities that do not report earnings separately are not permitted to elect the amortization approach for amounts excluded from the assessment of effectiveness under fair value hedge accounting in accordance with paragraphs [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A) and [815-25-35-1(a)](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-1). Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e3998752a0972a00f1062e9f18af09476ebdd1b6ee3f6fe69eb599119f1fcff5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/815/20/#25-recognition) SEC content: no ##### [815-20-25-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0cbd308b82c7d3582876d52841df59c676ef53c8d1db49346e90e377a4a2f41f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section sets forth criteria that must be met for designated hedging instruments and hedged items or [transactions](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") to qualify for [fair value hedge](https://asc.understandingaccounting.org/glossary/f/#fair-value-hedge "A hedge of the exposure to changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk.") accounting, [cash flow hedge](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.") accounting, and accounting for a hedge of a net investment in a foreign operation. The criteria are organized as follows: 1. a Formal designation and documentation at hedge inception 2. b Eligibility of hedged items and transactions 3. c Eligibility of hedging instruments 4. d Hedge effectiveness. 5. e Hedge accounting provisions applicable to certain private companies 6. f Hedge accounting provisions applicable to certain not-for-profit entities. ##### [815-20-25-2](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0ab095f50d31d4ab3cce997c009f6ff103823eb18691ed11bd4d406d61a251c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Section specifies whether a criterion applies to one or more types of hedging relationships. For example, paragraph [815-20-25-3(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) is specified as a criterion that applies to fair value hedges, cash flow hedges, and net investment hedges. #### Formal Designation and Documentation at Hedge Inception ##### [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5c5e43a5df305745387bddce6a4d0bdc803fd3b73a58c05bdb9fee61b4bdd524 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Concurrent designation and documentation of a hedge is critical; without it, an entity could retroactively identify a hedged item, a hedged [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities."), or a method of assessing effectiveness to achieve a desired accounting result. To qualify for hedge accounting, there shall be, at inception of the hedge, formal documentation of all of the following: 1. a [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/) 2. b Documentation requirement applicable to fair value hedges, cash flow hedges, and net investment hedges: 1. 1 The hedging relationship 2. 2 The entity's risk management objective and strategy for undertaking the hedge, including identification of all of the following: 1. i The hedging instrument. 2. ii The hedged item or transaction. 3. iii The nature of the risk being hedged. 4. iv The method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") (if a fair value hedge) or hedged transaction's variability in cash flows (if a cash flow hedge) attributable to the hedged risk. There shall be a reasonable basis for how the entity plans to assess the hedging instrument's effectiveness. 1. 01 An entity shall perform an initial prospective assessment of hedge effectiveness on a quantitative basis (using either a dollar-offset test or a statistical method such as regression analysis) unless one of the following applies: 1. A In a cash flow or fair value hedge, the entity applies the shortcut method in accordance with paragraphs [815-20-25-102 through 25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) 2. B In a cash flow or fair value hedge, the entity determines that the critical terms of the hedging instrument and the hedged item match in accordance with paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) . 3. C In a cash flow hedge, the hedging instrument is an option, and the conditions in paragraphs [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126) and [815-20-25-129 through 25-129A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) are met. 4. D In a cash flow hedge, a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") that is not a financial institution as described in paragraph [942-320-50-1](https://asc.understandingaccounting.org/asc/320/942/#320-942-50-1) applies the simplified hedge accounting approach in paragraphs [815-20-25-133 through 25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) . 5. E In a cash flow hedge, the entity assesses hedge effectiveness under the change in variable cash flows method in accordance with paragraphs [815-30-35-16 through 35-24](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-16) , and all of the conditions in paragraph [815-30-35-22](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-22) are met. 6. F In a cash flow hedge, the entity assesses hedge effectiveness under the hypothetical derivative method in accordance with paragraphs [815-30-35-25 through 35-29](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-25) , and all of the critical terms of the hypothetical derivative and hedging instrument are the same. 7. G In a net investment hedge, the entity assesses hedge effectiveness using a method based on changes in spot exchange rates, and the conditions in paragraph [815-35-35-5](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5) (for derivative instruments) or [815-35-35-12](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-12) (for nonderivative instruments) are met. 8. H In a net investment hedge, the entity assesses hedge effectiveness using a method based on changes in forward exchange rates, and the conditions in paragraph [815-35-35-17A](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-17A) are met. 2. 02 The initial prospective quantitative hedge effectiveness assessment using information applicable as of the date of hedge inception is considered to be performed concurrently at hedge inception if it is completed by the earliest of the following: 1. A The first quarterly hedge effectiveness assessment date 2. B The date that financial statements that include the hedged transaction are available to be issued 3. C The date that any criterion in Section 815-20-25 no longer is met 4. D The date of expiration, sale, termination, or exercise of the hedging instrument 5. E The date of dedesignation of the hedging relationship 6. F For a cash flow hedge of a forecasted transaction (in accordance with paragraph [815-20-25-13(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-13)), the date that the forecasted transaction occurs. 3. 03 An entity also shall document at hedge inception whether it elects to perform subsequent retrospective and prospective hedge effectiveness assessments on a qualitative basis and how it intends to carry out that qualitative assessment. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of effectiveness. In addition, the entity shall document which quantitative method it will use if facts and circumstances of the hedging relationship change and the entity must quantitatively assess hedge effectiveness in accordance with paragraph [815-20-35-2D](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D). An entity must document that it will perform the same quantitative assessment method for both initial and subsequent prospective hedge effectiveness assessments. The guidance in paragraphs [815-20-55-55 through 55-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-55) applies if the entity wants to change its quantitative method of assessing effectiveness after the initial quantitative effectiveness assessment. 4. 04 An entity that applies the shortcut method in paragraphs [815-20-25-102 through 25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) may elect to document at hedge inception a quantitative method to assess hedge effectiveness and measure hedge results if the entity determines at some point during the term of the hedging relationship that the use of the shortcut method was not or no longer is appropriate. See paragraphs [815-20-25-117A through 25-117D](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) . 5. v [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 6. vi If the entity is hedging foreign currency risk on an after-tax basis, that the assessment of effectiveness will be on an after-tax basis (rather than on a pretax basis). 3. c Documentation requirement applicable to fair value hedges only: 1. 1 For a fair value hedge of a [firm commitment](https://asc.understandingaccounting.org/glossary/f/#firm-commitment "An agreement with an unrelated party, binding on both parties and usually legally enforceable, with the following characteristics:The agreement specifies all significant terms, including the quantity to be exchanged, the fixed price, and the timing of the transaction. The fixed price may be expressed as a specified amount of an entity's functional currency or of a foreign currency. It may also be expressed as a specified interest rate or specified effective yield. The binding provisions of an agreement are regarded to include those legal rights and obligations codified in the laws to which such an agreement is subject. A price that varies with the market price of the item that is the subject of the firm commitment cannot qualify as a fixed price. For example, a price that is specified in terms of ounces of gold would not be a fixed price if the market price of the item to be purchased or sold under the firm commitment varied with the price of gold. The agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable. In the legal jurisdiction that governs the agreement, the existence of statutory rights to pursue remedies for default equivalent to the damages suffered by the nondefaulting party, in and of itself, represents a sufficiently large disincentive for nonperformance to make performance probable for purposes of applying the definition of a firm commitment."), a reasonable method for recognizing in earnings the asset or liability representing the gain or loss on the hedged firm commitment. 2. 2 For one or more interest rate risk hedging relationships designated under the portfolio layer method, an analysis to support the entity's expectation that the [hedged layer](https://asc.understandingaccounting.org/glossary/h/#hedged-layer "The hedged item designated in a portfolio layer method hedging relationship, representing a stated amount or stated amounts of a closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments that is not expected to be affected by prepayments, defaults, or other factors affecting the timing and amount of cash flows for the designated hedge period.") or layers is anticipated to be outstanding for the designated hedge period (see paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) for additional guidance). 4. d Documentation requirement applicable to cash flow hedges only: 1. 1 For a cash flow hedge of a [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices."), documentation shall include all relevant details, including all of the following: 1. i The date on or period within which the forecasted transaction is expected to occur. 2. ii The specific nature of asset or liability involved (if any). 3. iii Either of the following: 1. 01 The expected currency amount for hedges of foreign currency exchange risk; that is, specification of the exact amount of foreign currency being hedged 2. 02 The quantity of the forecasted transaction for hedges of other risks; that is, specification of the physical quantity (that is, the number of items or units of measure) encompassed by the hedged forecasted transaction. 4. iv If a forecasted sale or purchase is being hedged for price risk, the hedged transaction shall not be specified in either of the following ways: 1. 01 Solely in terms of expected currency amounts 2. 02 As a percentage of sales or purchases during a period. 5. v The current price of a forecasted transaction shall be identified to satisfy the criterion in paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) for offsetting cash flows. 6. vi The hedged forecasted transaction shall be described with sufficient specificity so that when a transaction occurs, it is clear whether that transaction is or is not the hedged transaction. Thus, a forecasted transaction could be identified as the sale of either the first 15,000 units of a specific product sold during a specified 3-month period or the first 5,000 units of a specific product sold in each of 3 specific months, but it could not be identified as the sale of the last 15,000 units of that product sold during a 3-month period (because the last 15,000 units cannot be identified when they occur, but only when the period has ended). 7. vii If the hedged risk is the variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") in a forecasted purchase or sale of a nonfinancial asset, identification of the contractually specified component. 8. viii If the hedged risk is the variability in cash flows attributable to changes in a contractually specified interest rate for forecasted interest receipts or payments on a variable-rate financial asset or liability, identification of the contractually specified interest rate. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)Concurrent designation and documentation of a hedge is critical; without it, an entity could retroactively identify a hedged item, a hedged [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities."), or a method of assessing effectiveness to achieve a desired accounting result. To qualify for hedge accounting, there shall be, at inception of the hedge, formal documentation of all of the following: 1. a [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/) 2. b Documentation requirement applicable to fair value hedges, cash flow hedges, and net investment hedges: 1. 1 The hedging relationship 2. 2 The entity's risk management objective and strategy for undertaking the hedge, including identification of all of the following: 1. i The hedging instrument. 2. ii The hedged item or transaction. 3. iii The nature of the risk being hedged (also see the requirements in (d)(1)(viii)). 4. iv The method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") (if a fair value hedge) or hedged transaction's variability in cash flows (if a cash flow hedge) attributable to the hedged risk. There shall be a reasonable basis for how the entity plans to assess the hedging instrument's effectiveness. 1. 01 An entity shall perform an initial prospective assessment of hedge effectiveness on a quantitative basis (using either a dollar-offset test or a statistical method such as regression analysis) unless one of the following applies: 1. A In a cash flow or fair value hedge, the entity applies the shortcut method in accordance with paragraphs [815-20-25-102 through 25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) 2. B In a cash flow or fair value hedge, the entity determines that the critical terms of the hedging instrument and the hedged item match in accordance with paragraphs [815-20-25-84 through 25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) . 3. C In a cash flow hedge, the hedging instrument is an option, and the conditions in paragraphs [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126) and [815-20-25-129 through 25-129A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) are met. 4. D In a cash flow hedge, a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") that is not a financial institution as described in paragraph [942-320-50-1](https://asc.understandingaccounting.org/asc/320/942/#320-942-50-1) applies the simplified hedge accounting approach in paragraphs [815-20-25-133 through 25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) . 5. E In a cash flow hedge, the entity assesses hedge effectiveness under the change in variable cash flows method in accordance with paragraphs [815-30-35-16 through 35-24](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-16) , and all of the conditions in paragraph [815-30-35-22](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-22) are met. 6. F In a cash flow hedge, the entity assesses hedge effectiveness under the hypothetical derivative method in accordance with paragraphs [815-30-35-25 through 35-29](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-25) , and all of the critical terms of the hypothetical derivative and hedging instrument are the same. 7. G In a net investment hedge, the entity assesses hedge effectiveness using a method based on changes in spot exchange rates, and the conditions in paragraph [815-35-35-5](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5) (for derivative instruments) or [815-35-35-12](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-12) (for nonderivative instruments) are met. 8. H In a net investment hedge, the entity assesses hedge effectiveness using a method based on changes in forward exchange rates, and the conditions in paragraph [815-35-35-17A](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-17A) are met. 2. 02 The initial prospective quantitative hedge effectiveness assessment using information applicable as of the date of hedge inception is considered to be performed concurrently at hedge inception if it is completed by the earliest of the following: 1. A The first quarterly hedge effectiveness assessment date 2. B The date that financial statements that include the hedged transaction are available to be issued 3. C The date that any criterion in Section 815-20-25 no longer is met 4. D The date of expiration, sale, termination, or exercise of the hedging instrument 5. E The date of dedesignation of the hedging relationship 6. F For a cash flow hedge of a forecasted transaction (in accordance with paragraph [815-20-25-13(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-13)), the date that the forecasted transaction occurs. 3. 03 An entity also shall document at hedge inception whether it elects to perform subsequent retrospective and prospective hedge effectiveness assessments on a qualitative basis and how it intends to carry out that qualitative assessment. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of effectiveness. In addition, the entity shall document which quantitative method it will use if facts and circumstances of the hedging relationship change and the entity must quantitatively assess hedge effectiveness in accordance with paragraph [815-20-35-2D](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D). An entity must document that it will perform the same quantitative assessment method for both initial and subsequent prospective hedge effectiveness assessments. The guidance in paragraphs [815-20-55-55 through 55-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-55) applies if the entity wants to change its quantitative method of assessing effectiveness after the initial quantitative effectiveness assessment. 4. 04 An entity that applies the shortcut method in paragraphs [815-20-25-102 through 25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) may elect to document at hedge inception a quantitative method to assess hedge effectiveness and measure hedge results if the entity determines at some point during the term of the hedging relationship that the use of the shortcut method was not or no longer is appropriate. See paragraphs [815-20-25-117A through 25-117D](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) . 5. v [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 6. vi If the entity is hedging foreign currency risk on an after-tax basis, that the assessment of effectiveness will be on an after-tax basis (rather than on a pretax basis). 3. c Documentation requirement applicable to fair value hedges only: 1. 1 For a fair value hedge of a [firm commitment](https://asc.understandingaccounting.org/glossary/f/#firm-commitment "An agreement with an unrelated party, binding on both parties and usually legally enforceable, with the following characteristics:The agreement specifies all significant terms, including the quantity to be exchanged, the fixed price, and the timing of the transaction. The fixed price may be expressed as a specified amount of an entity's functional currency or of a foreign currency. It may also be expressed as a specified interest rate or specified effective yield. The binding provisions of an agreement are regarded to include those legal rights and obligations codified in the laws to which such an agreement is subject. A price that varies with the market price of the item that is the subject of the firm commitment cannot qualify as a fixed price. For example, a price that is specified in terms of ounces of gold would not be a fixed price if the market price of the item to be purchased or sold under the firm commitment varied with the price of gold. The agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable. In the legal jurisdiction that governs the agreement, the existence of statutory rights to pursue remedies for default equivalent to the damages suffered by the nondefaulting party, in and of itself, represents a sufficiently large disincentive for nonperformance to make performance probable for purposes of applying the definition of a firm commitment."), a reasonable method for recognizing in earnings the asset or liability representing the gain or loss on the hedged firm commitment. 2. 2 For one or more interest rate risk hedging relationships designated under the portfolio layer method, an analysis to support the entity's expectation that the [hedged layer](https://asc.understandingaccounting.org/glossary/h/#hedged-layer "The hedged item designated in a portfolio layer method hedging relationship, representing a stated amount or stated amounts of a closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments that is not expected to be affected by prepayments, defaults, or other factors affecting the timing and amount of cash flows for the designated hedge period.") or layers is anticipated to be outstanding for the designated hedge period (see paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) for additional guidance). 4. d Documentation requirement applicable to cash flow hedges only: 1. 1 For a cash flow hedge of a [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices."), documentation shall include all relevant details, including all of the following: 1. i The date on or period within which the forecasted transaction is expected to occur. 2. ii The specific nature of asset or liability involved (if any). 3. iii Either of the following: 1. 01 The expected currency amount for hedges of foreign currency exchange risk; that is, specification of the exact amount of foreign currency being hedged 2. 02 The quantity of the forecasted transaction for hedges of other risks; that is, specification of the physical quantity (that is, the number of items or units of measure) encompassed by the hedged forecasted transaction. 4. iv If a forecasted sale or purchase is being hedged for price risk, the hedged transaction shall not be specified in either of the following ways: 1. 01 Solely in terms of expected currency amounts 2. 02 As a percentage of sales or purchases during a period. 5. v The current price of a forecasted transaction shall be identified to satisfy the criterion in paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) for offsetting cash flows. 6. vi The hedged forecasted transaction shall be described with sufficient specificity so that when a transaction occurs, it is clear whether that transaction is or is not the hedged transaction. Thus, a forecasted transaction could be identified as the sale of either the first 15,000 units of a specific product sold during a specified 3-month period or the first 5,000 units of a specific product sold in each of 3 specific months, but it could not be identified as the sale of the last 15,000 units of that product sold during a 3-month period (because the last 15,000 units cannot be identified when they occur, but only when the period has ended). 7. vii If the hedged risk is the variability in cash flows attributable to changes in a component of the price of a nonfinancial asset (or a subcomponent as described in paragraph [815-20-25-22C(b)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C))in a forecasted purchase or sale of a nonfinancial asset that meets the criterion in paragraph [815-20-25-15(i)(3)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), identification of the component (or subcomponent). 8. viii If the hedged risk is the variability in cash flows attributable to changes in a contractually specified interest rate for forecasted interest receipts or payments on a variable-rate financial asset or liability, identification of the contractually specified interest rate. See paragraphs [815-30-35-37B through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) for guidance on changing the contractually specified interest rate for a hedge of forecasted interest payments on a variable-rate debt instrument that permits the borrower to select at each reset period the interest rate index from a list of contractual options (including the interest rate tenor) upon which interest is accrued (this debt instrument is referred to throughout Topic 815 as “choose-your-rate” debt). 2. 2 For a cash flow hedge of a group of forecasted transactions, the method that will be used to determine whether a group of individual forecasted transactions have a similar risk exposure in accordance with paragraph [815-20-55-23A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A). ##### [815-20-25-3A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:bddc5ed49dbc45ec969487b3a20ea9ba321409f052e4c76a796d6de34fe34b00 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [815-20-25-133 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) for guidance on the timing of completing the hedge documentation required by paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) for a private company that is not a financial institution. The guidance in paragraphs [815-20-25-133 through 25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) applies to hedging relationships in which the simplified hedge accounting approach is applied. The guidance in paragraphs [815-20-25-139 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) applies to all hedging relationships other than those in which the simplified hedge accounting approach is applied. The guidance in paragraphs [815-20-25-139 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) also applies to not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market) in accordance with paragraph [815-20-25-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-143). #### Eligibility of Hedged Items and Transactions ##### [815-20-25-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:6298b6c903627ed7f59a64b3d67e0726aeafc258851fabbdbb58b01ba4350303 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The eligibility criteria for hedged items and transactions are organized as follows: 1. a Hedged item and transaction criteria applicable to both fair value hedges and cash flow hedges 2. b Hedged item criteria applicable to fair value hedges only 3. c Hedged transaction criteria applicable to cash flow hedges only 4. d Hedged items involving [foreign exchange risk](https://asc.understandingaccounting.org/glossary/f/#foreign-exchange-risk "The risk of changes in a hedged item's fair value or functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates.") 5. e Items specifically ineligible for designation as a hedged item or transaction. ##### [815-20-25-5](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5bc633efb07298981beb2ce1f98a04fed1a4e4113a0660e8a02a49197be16015 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Incremental eligibility criteria applicable to both fair value hedges and cash flow hedges are organized as follows: 1. a Hedged items involving [interest rate risk](https://asc.understandingaccounting.org/glossary/i/#interest-rate-risk "For recognized variable-rate financial instruments and forecasted issuances or purchases of variable-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the contractually specified interest rate in the agreement. For recognized fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's fair value attributable to changes in the designated benchmark interest rate. For forecasted issuances or purchases of fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the designated benchmark interest rate.") 2. b Normal purchase or normal sale contract as a hedged item or transaction 3. c Different proportions of the same asset as a hedged item. ##### [815-20-25-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:82cb89fb58e5072c1472afe07b506a6e3cccc1e0f9186b9d071302d6ee142635 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Hedges involving a [benchmark interest rate](https://asc.understandingaccounting.org/glossary/b/#benchmark-interest-rate "A widely recognized and quoted rate in an active financial market that is broadly indicative of the overall level of interest rates attributable to high-credit-quality obligors in that market. It is a rate that is widely used in a given financial market as an underlying basis for determining the interest rates of individual financial instruments and commonly referenced in interest-rate-related transactions. In theory, the benchmark interest rate should be a risk-free rate (that is, has no risk of default). In some markets, government borrowing rates may serve as a benchmark. In other markets, the benchmark interest rate may be an interbank offered rate.") are addressed in paragraphs [815-20-25-12(f)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) and [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) (for fair value hedges) and paragraph [815-20-25-15(j)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) (for cash flow hedges). Hedges involving a contractually specified interest rate are addressed in [815-20-25-15(j)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) (for cash flow hedges). The benchmark interest rate or the contractually specified interest rate being hedged in a hedge of [interest rate risk](https://asc.understandingaccounting.org/glossary/i/#interest-rate-risk "For recognized variable-rate financial instruments and forecasted issuances or purchases of variable-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the contractually specified interest rate in the agreement. For recognized fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's fair value attributable to changes in the designated benchmark interest rate. For forecasted issuances or purchases of fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the designated benchmark interest rate.") shall be specifically identified as part of the designation and documentation at the inception of the hedging relationship. Paragraphs [815-20-25-19A through 25-19B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A) provide guidance on the interest rate risk designation of hedges of forecasted issuances or purchases of debt instruments. An entity shall not simply designate prepayment risk as the risk being hedged for a financial asset. However, it can designate the option component of a [prepayable](https://asc.understandingaccounting.org/glossary/p/#prepayable "Able to be settled by either party before its scheduled maturity.") instrument as the hedged item in a fair value hedge of the entity's exposure to changes in the overall fair value of that prepayment option, perhaps thereby achieving the objective of its desire to hedge prepayment risk. The effect of an [embedded derivative](https://asc.understandingaccounting.org/glossary/e/#embedded-derivative "Implicit or explicit terms that affect some or all of the cash flows or the value of other exchanges required by a contract in a manner similar to a derivative instrument.") of the same risk class shall be considered in designating a hedge of an individual risk. For example, the effect of an embedded prepayment option shall be considered in designating a hedge of interest rate risk. ##### [815-20-25-6A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:81ade036addec89d15429356e64f3c9299d070b5472faa6e47fe52f7b3ec3979 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the United States, the interest rates on direct Treasury obligations of the U.S. government, the [London Interbank Offered Rate (LIBOR) swap rate](https://asc.understandingaccounting.org/glossary/l/#london-interbank-offered-rate-libor-swap-rate "The fixed rate on a single-currency, constant-notional interest rate swap that has its variable-rate leg referenced to the London Interbank Offered Rate (LIBOR) with no additional spread over LIBOR on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equate to the present value of the variable cash flows."), the [Fed Funds Effective Rate Overnight Index Swap Rate](https://asc.understandingaccounting.org/glossary/f/#fed-funds-effective-swap-rate-or-overnight-index-swap-rate "The fixed rate on a U.S. dollar, constant-notional interest rate swap that has its variable-rate leg referenced to the Fed Funds effective rate with no additional spread over the Fed Funds effective rate on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equates to the present value of the variable cash flows. (P) December 16, 2018; (N) December 16, 2020815-20-65-4Glossary term superseded by Accounting Standards Update No. 2018-16."), the [Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate](https://asc.understandingaccounting.org/glossary/s/#securities-industry-and-financial-markets-association-sifma-municipal-swap-rate "The fixed rate on a U.S. dollar, constant-notional interest rate swap that has its variable-rate leg referenced to the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index with no additional spread over the SIFMA Municipal Swap Index on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equates to the present value of the variable cash flows."), and the [Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate](https://asc.understandingaccounting.org/glossary/s/#secured-overnight-financing-rate-sofr-overnight-index-swap-rate "The fixed rate on a U.S. dollar, constant-notional interest rate swap that has its variable-rate leg referenced to the Secured Overnight Financing Rate (SOFR) (an overnight rate) with no additional spread over SOFR on that variable-rate leg. That fixed rate is the derived rate that would result in the swap having a zero fair value at inception because the present value of fixed cash flows, based on that rate, equates to the present value of the variable cash flows.")are considered to be benchmark interest rates. In each financial market, generally only the most widely used and quoted rates may be considered benchmark interest rates. ##### [815-20-25-6B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ecdf27ef933669009b53f29f441a793c9be25ad892c185d3b6e57af7197383d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate a fair value hedge of interest rate risk in which the hedged item is a prepayable instrument in accordance with paragraph [815-20-25-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6). The entity may consider only how changes in the benchmark interest rate affect the decision to settle the hedged item before its scheduled maturity (for example, an entity may consider only how changes in the benchmark interest rate affect an obligor's decision to call a debt instrument when it has the right to do so). The entity need not consider other factors that would affect this decision (for example, credit risk) when assessing hedge effectiveness. Paragraph [815-25-35-13A](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13A) discusses the measurement of the hedged item. ##### [815-20-25-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b1c71f826acd732e64377ed629bd271a1a94d2a79328b52389ad0e9021279c29 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract that is not subject to the requirements of Subtopic 815-10 because it qualifies for the normal purchases and normal sales scope exception may be designated as a hedged item in a fair value hedge, if the provisions of this Section are met. As the hedged item, the contract would be accounted for under fair value hedge accounting. Similarly, the purchase under that contract may be the hedged transaction in a cash flow hedge, if the provisions of paragraph [815-20-25-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) are met. For cash flow hedges, the special accounting applies to the hedging instrument, not to the purchase contract that is related to the hedged forecasted transaction. ##### [815-20-25-8](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-8) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4a429084050a665f438629f3c2cff586b06ecd618a98eb441c55f2afa852be0a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In emphasizing the conditions in the definition of a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") in paragraphs [815-10-15-83 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) , paragraphs [815-10-15-13 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) essentially exempt contracts that meet the definition of a derivative instrument from the requirements of Subtopic 815-10 applicable to derivative instruments. However, paragraphs [815-10-15-13 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) are not intended to preclude such contracts from being subject to the requirements of Subtopic 815-10 applicable to the hedged item in a fair value hedge. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [815-10-65-8](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-8)In emphasizing the conditions in the definition of a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") in paragraphs [815-10-15-83 through 15-139](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-83) , paragraphs [815-10-15-13 through 15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) and [815-10-15-62 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) essentially exempt contracts that meet the definition of a derivative instrument from the requirements of Subtopic 815-10 applicable to derivative instruments. However, paragraphs [815-10-15-13 through 15-60](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-13) and [815-10-15-62 through 15-82](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-62) are not intended to preclude such contracts from being subject to the requirements of Subtopic 815-10 applicable to the hedged item in a fair value hedge. ##### [815-20-25-9](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1e4d747ce010d6bbc6d151d9d35603e6ed158cbb62fb4ae962515542d25e4241 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract that qualifies for the normal purchases and normal sales exception will typically satisfy the criteria for a firm commitment and will not be recognized on an entity's financial statements because of the exclusion from recognition under Subtopic 815-10 or other Topics. The transaction under a contract that qualifies for the normal purchases and normal sales exception but does not satisfy the criteria for a firm commitment because the contract does not contain a fixed price may be the hedged transaction in a cash flow hedge. ##### [815-20-25-10](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:da031b789b947788ea22e6cd71754a1b0e5e28f325f6994c02448407318b1695 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a hedging relationship in which a collar that is comprised of a purchased option and a written option that have different [notional amounts](https://asc.understandingaccounting.org/glossary/n/#notional-amount "A number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument. Sometimes other names are used. For example, the notional amount is called a face amount in some contracts.") is designated as the hedging instrument and the hedge's effectiveness is assessed based on changes in the collar's intrinsic value, the hedged item may be specified as two different proportions of the same asset referenced in the collar, based on the upper and lower price ranges specified in the two options that make up the collar. That is, the quantities of the asset designated as being hedged may be different based on those price ranges in which the collar's intrinsic value is other than zero. This guidance shall be applied only to collars that are a combination of a single written option and a single purchased option for which the [underlying](https://asc.understandingaccounting.org/glossary/u/#underlying "A specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but is not the asset or liability itself. An underlying is a variable that, along with either a notional amount or a payment provision, determines the settlement of a derivative instrument.") in both options is the same. This guidance shall not be applied by analogy to other derivative instruments designated as hedging instruments. Although the quantities of the asset designated as being hedged may be different based on the upper and lower price ranges in the collar, the actual assets that are the subject of the hedging relationship may not change. The quantities that are designated as hedged for a specific price or rate change shall be specified at the inception of the hedging relationship and shall not be changed unless the hedging relationship is dedesignated and a new hedging relationship is redesignated. Since the hedge's effectiveness is based on changes in the collar's intrinsic value, the assessment of hedge effectiveness shall compare the actual change in intrinsic value of the collar to the change in value of the prespecified quantity of the hedged asset that occurred during the hedge period. ##### [815-20-25-11](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:549ed179e1abd617501b68a964be18beb080dc09b7972d35d73558d50568224c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate a derivative instrument as hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof (hedged item) that is attributable to a particular risk if all applicable criteria in this Section are met. ##### [815-20-25-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0cee7a7253d06762a6e81871828a2bab59676e2af1b8c2bc348ae0bf3e19adac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An asset or a liability is eligible for designation as a hedged item in a fair value hedge if all of the following additional criteria are met: 1. a The hedged item is specifically identified as either all or a specific portion of a recognized asset or liability or of an unrecognized firm commitment. 2. b The hedged item is a single asset or liability (or a specific portion thereof) or is a portfolio of similar assets or a portfolio of similar liabilities (or a specific portion thereof), in which circumstance: 1. 1 If similar assets or similar liabilities are aggregated and hedged as a portfolio, the individual assets or individual liabilities shall share the risk exposure for which they are designated as being hedged. The change in fair value attributable to the hedged risk for each individual item in a hedged portfolio shall be expected to respond in a generally proportionate manner to the overall change in fair value of the aggregate portfolio attributable to the hedged risk. See the discussion beginning in paragraph [815-20-55-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-14) for related implementation guidance. An entity may use different stratification criteria for the purposes of impairment testing and for the purposes of grouping similar assets to be designated as a hedged portfolio in a fair value hedge. 2. 2 If the hedged item is a specific portion of an asset or liability (or of a portfolio of similar assets or a portfolio of similar liabilities), the hedged item is one of the following: 1. i A percentage of the entire asset or liability (or of the entire portfolio). An entity shall not express the hedged item as multiple percentages of a recognized asset or liability and then retroactively determine the hedged item based on an independent matrix of those multiple percentages and the actual scenario that occurred during the period for which hedge effectiveness is being assessed. 2. ii One or more selected contractual cash flows, including one or more individual interest payments during a selected portion of the term of a debt instrument (such as the portion of the asset or liability representing the present value of the interest payments in any consecutive two years of a four-year debt instrument). Paragraph [815-25-35-13B](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13B) discusses the measurement of the change in fair value of the hedged item in partial-term hedges of [interest rate risk](https://asc.understandingaccounting.org/glossary/i/#interest-rate-risk "For recognized variable-rate financial instruments and forecasted issuances or purchases of variable-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the contractually specified interest rate in the agreement. For recognized fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's fair value attributable to changes in the designated benchmark interest rate. For forecasted issuances or purchases of fixed-rate financial instruments, interest rate risk is the risk of changes in the hedged item's cash flows attributable to changes in the designated benchmark interest rate.") using an assumed term. 3. iii A put option or call option (including an interest rate cap or price cap or an interest rate floor or price floor) embedded in an existing asset or liability that is not an embedded derivative accounted for separately pursuant to paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1). 4. iv The residual value in a lessor's net investment in a direct financing or sales-type lease. 3. c The hedged item presents an exposure to changes in fair value attributable to the hedged risk that could affect reported earnings. The reference to affecting reported earnings does not apply to an entity that does not report earnings as a separate caption in a statement of financial performance, such as a not-for-profit entity (NFP), in accordance with paragraph [815-20-15-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-15-1). 4. d If the hedged item is all or a portion of a debt security (or a portfolio of similar debt securities) that is classified as held to maturity in accordance with Topic 320, the designated risk being hedged is the risk of changes in its fair value attributable to [credit risk](https://asc.understandingaccounting.org/glossary/c/#credit-risk "For purposes of a hedged item in a fair value hedge, credit risk is the risk of changes in the hedged item's fair value attributable to both of the following: Changes in the obligor's creditworthiness Changes in the spread over the benchmark interest ratewith respect to the hedged item's credit sector at inception of the hedge. For purposes of a hedged transaction in a cash flow hedge, credit risk is the risk of changes in the hedged transaction's cash flows attributable to all of the following: Default Changes in the obligor's creditworthiness Changes in the spread over the contractually specified interest rate or the benchmark interest rate with respect to the related financial asset's or liability's credit sector at inception of the hedge."), foreign exchange risk, or both. If the hedged item is an option component of a held-to-maturity security that permits its prepayment, the designated risk being hedged is the risk of changes in the entire fair value of that option component. If the hedged item is other than an option component of a held-to-maturity security that permits its prepayment, the designated hedged risk also shall not be the risk of changes in its overall fair value. 5. e If the hedged item is a nonfinancial asset or liability (other than a recognized loan servicing right or a nonfinancial firm commitment with financial components), the designated risk being hedged is the risk of changes in the fair value of the entire hedged asset or liability (reflecting its actual location if a physical asset). That is, the price risk of a similar asset in a different location or of a major ingredient shall not be the hedged risk. Thus, in hedging the exposure to changes in the fair value of gasoline, an entity may not designate the risk of changes in the price of crude oil as the risk being hedged for purposes of determining effectiveness of the fair value hedge of gasoline. 6. f If the hedged item is a financial asset or liability, a recognized loan servicing right, or a nonfinancial firm commitment with financial components, the designated risk being hedged is any of the following: 1. 1 The risk of changes in the overall fair value of the entire hedged item 2. 2 The risk of changes in its fair value attributable to changes in the designated benchmark interest rate (referred to as interest rate risk) 3. 3 The risk of changes in its fair value attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk) 4. 4 The risk of changes in its fair value attributable to both of the following (referred to as credit risk): 1. i Changes in the obligor's creditworthiness 2. ii Changes in the spread over the benchmark interest rate with respect to the hedged item's credit sector at inception of the hedge. 5. 5 If the risk designated as being hedged is not the risk in paragraph [815-20-25-12(f)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12), two or more of the other risks (interest rate risk, foreign currency exchange risk, and credit risk) may simultaneously be designated as being hedged. 7. g The item is not otherwise specifically ineligible for designation (see paragraph [815-20-25-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43)). ##### [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:36d4db00eae9fc0dcfe2d7e18ff8e519b06f5fd77e3fd89db0ccfc8dda55514b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a closed portfolio of financial assets or one or more [beneficial interests](https://asc.understandingaccounting.org/glossary/b/#beneficial-interests "Rights to receive all or portions of specified cash inflows received by a trust or other entity, including, but not limited to, all of the following: Senior and subordinated shares of interest, principal, or other cash inflows to be passed-through or paid-through Premiums due to guarantors Commercial paper obligations Residual interests, whether in the form of debt or equity.") secured by a portfolio of financial instruments, an entity may designate as the hedged item or items a hedged layer or layers if the following criteria are met (this designation is referred to throughout Topic 815 as the “portfolio layer method”): 1. a As part of the initial hedge documentation, an analysis is completed and documented to support the entity's expectation that the hedged item or items (that is, the hedged layer or layers in aggregate) is anticipated to be outstanding for the designated hedge period. That analysis shall incorporate the entity's current expectations of prepayments, defaults, and other factors affecting the timing and amount of cash flows associated with the closed portfolio. 2. b For purposes of its analysis in (a), the entity assumes that as prepayments, defaults, and other factors affecting the timing and amount of cash flows occur, they first will be applied to the portion of the closed portfolio that is not hedged. 3. c The entity applies the partial-term hedging guidance in paragraph [815-20-25-12(b)(2)(ii)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) to the assets or beneficial interest used to support the entity’s expectation in (a). An asset that matures on a hedged layer’s assumed maturity date meets this requirement. See paragraphs [815-25-55-1A through 55-1E](https://asc.understandingaccounting.org/asc/815/25/#815-25-55-1A) for implementation guidance related to a closed portfolio with multiple hedged layers. ##### [815-20-25-12B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:36444bc2f2585bcf44f33cfd950233a50ad364fa42f8e76cc7cb01269825b51b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After a closed portfolio is established in accordance with paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A), an entity may designate new hedging relationships associated with the closed portfolio without dedesignating any existing hedging relationships associated with the closed portfolio if the criteria in paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A) are met for those newly designated hedging relationships. ##### [815-20-25-13](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:eac4f7420cf54e952550d7526ae48780bc92fb8fe63734ebf396917d6c87d445 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate a derivative instrument as hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. That exposure may be associated with either of the following: 1. a An existing recognized asset or liability (such as all or certain future interest payments on variable-rate debt) 2. b A forecasted transaction (such as a forecasted purchase or sale). Note that the glossary definition of [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") is intended to clearly distinguish a transaction from an internal cost allocation or an event that happens within an entity. ##### [815-20-25-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4b8453f32c2c83c42d3ff8c5e20986006e2038e93789bd7f2ab213a4913d0340 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of this Subtopic and Subtopic 815-30, the individual cash flows related to a recognized asset or liability and the cash flows related to a forecasted transaction are both referred to as a forecasted transaction or hedged transaction. ##### [815-20-25-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8e6c33cbf3af9339d75e0088ade44ee3dc93ec04237106b20c5cf73942f23ca2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A forecasted transaction is eligible for designation as a hedged transaction in a cash flow hedge if all of the following additional criteria are met: 1. a The forecasted transaction is specifically identified as either of the following: 1. 1 A single transaction 2. 2 A group of individual transactions that share the same risk exposure for which they are designated as being hedged. A forecasted purchase and a forecasted sale shall not both be included in the same group of individual transactions that constitute the hedged transaction. 2. b The occurrence of the forecasted transaction is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur."). 3. c The forecasted transaction meets both of the following conditions: 1. 1 It is a transaction with a party external to the reporting entity (except as permitted by paragraphs [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) and [815-20-25-38 through 25-40](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-38) ). 2. 2 It presents an exposure to variations in cash flows for the hedged risk that could affect reported earnings. 4. d The forecasted transaction is not the acquisition of an asset or incurrence of a liability that will subsequently be remeasured with changes in fair value attributable to the hedged risk reported currently in earnings. 5. e If the forecasted transaction relates to a recognized asset or liability, the asset or liability is not remeasured with changes in fair value attributable to the hedged risk reported currently in earnings. 6. f If the variable cash flows of the forecasted transaction relate to a debt security that is classified as held to maturity under Topic 320, the risk being hedged is the risk of changes in its cash flows attributable to any of the following risks: 1. 1 Credit risk 2. 2 Foreign exchange risk. 7. g The forecasted transaction does not involve a business combination subject to the provisions of Topic 805or a combination accounted for by an NFP that is subject to the provisions of Subtopic 958-805. 8. h The forecasted transaction is not a transaction (such as a forecasted purchase, sale, or dividend) involving either of the following: 1. 1 A parent entity's interests in consolidated subsidiaries 2. 2 An entity's own equity instruments. 9. i If the hedged transaction is the forecasted purchase or sale of a nonfinancial asset, the designated risk being hedged is any of the following: 1. 1 The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates 2. 2 The risk of changes in the cash flows relating to all changes in the purchase price or sales price of the asset reflecting its actual location if a physical asset (regardless of whether that price and the related cash flows are stated in the entity's functional currency or a foreign currency), not the risk of changes in the cash flows relating to the purchase or sale of a similar asset in a different location. 3. 3 The risk of variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09."). (See additional criteria in paragraphs [815-20-25-22A through 25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) for designating the variability in cash flows attributable to changes in a contractually specified component as the hedged risk.) 10. j If the hedged transaction is the forecasted purchase or sale of a financial asset or liability (or the interest payments on that financial asset or liability) or the variable cash inflow or outflow of an existing financial asset or liability, the designated risk being hedged is any of the following: 1. 1 The risk of overall changes in the hedged cash flows related to the asset or liability, such as those relating to all changes in the purchase price or sales price (regardless of whether that price and the related cash flows are stated in the entity's functional currency or a foreign currency) 2. 2 For forecasted interest receipts or payments on an existing variable-rate financial instrument, the risk of changes in its cash flows attributable to changes in the contractually specified interest rate (referred to as interest rate risk). For a forecasted issuance or purchase of a debt instrument (or the forecasted interest payments on a debt instrument), the risk of changes in cash flows attributable to changes in the benchmark interest rate or the expected contractually specified interest rate. See paragraphs [815-20-25-19A through 25-19B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A) for further guidance on the designation of interest rate risk in the forecasted issuance or purchase of a debt instrument. 3. 3 The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk) 4. 4 The risk of changes in its cash flows attributable to all of the following (referred to as credit risk): 1. i Default 2. ii Changes in the obligor's creditworthiness 3. iii Changes in the spread over the contractually specified interest rate or benchmark interest rate with respect to the related financial asset's or liability's credit sector at inception of the hedge. If the risk designated as being hedged is not the risk in paragraph [815-20-25-15(j)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), two or more of the other risks (interest rate risk, foreign exchange risk, and credit risk) simultaneously may be designated as being hedged. 11. k The item is not otherwise specifically ineligible for designation (see paragraph [815-20-25-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43)). Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)A forecasted transaction is eligible for designation as a hedged transaction in a cash flow hedge if all of the following additional criteria are met: 1. a The forecasted transaction is specifically identified as either of the following: 1. 1 A single transaction 2. 2 A group of individual transactions that have a similar risk exposure for which they are designated as being hedged. A forecasted purchase and a forecasted sale shall not both be included in the same group of individual transactions that constitute the hedged transaction. 2. b The occurrence of the forecasted transaction is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur."). 3. c The forecasted transaction meets both of the following conditions: 1. 1 It is a transaction with a party external to the reporting entity (except as permitted by paragraphs [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) and [815-20-25-38 through 25-40](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-38) ). 2. 2 It presents an exposure to variations in cash flows for the hedged risk that could affect reported earnings. 4. d The forecasted transaction is not the acquisition of an asset or incurrence of a liability that will subsequently be remeasured with changes in fair value attributable to the hedged risk reported currently in earnings. 5. e If the forecasted transaction relates to a recognized asset or liability, the asset or liability is not remeasured with changes in fair value attributable to the hedged risk reported currently in earnings. For example, if the forecasted transaction relates to the purchase or sale of a nonfinancial item under a contract that is accounted for as a derivative under Topic 815 (that is, a recognized asset or liability), an entity may designate the variable price component (or subcomponent) in the contract as the hedged risk if all other hedge criteria are satisfied. 6. f If the variable cash flows of the forecasted transaction relate to a debt security that is classified as held to maturity under Topic 320, the risk being hedged is the risk of changes in its cash flows attributable to any of the following risks: 1. 1 Credit risk 2. 2 Foreign exchange risk. 7. g The forecasted transaction does not involve a business combination subject to the provisions of Topic 805or a combination accounted for by an NFP that is subject to the provisions of Subtopic 958-805. 8. h The forecasted transaction is not a transaction (such as a forecasted purchase, sale, or dividend) involving either of the following: 1. 1 A parent entity's interests in consolidated subsidiaries 2. 2 An entity's own equity instruments. 9. i If the hedged transaction is the forecasted purchase or sale of a nonfinancial asset, the designated risk being hedged is any of the following: 1. 1 The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates 2. 2 The risk of changes in the cash flows relating to all changes in the purchase price or sales price of the asset reflecting its actual location if a physical asset (regardless of whether that price and the related cash flows are stated in the entity's functional currency or a foreign currency), not the risk of changes in the cash flows relating to the purchase or sale of a similar asset in a different location. 3. 3 The risk of changes in cash flows relating to a variable component (or subcomponent) of the purchase or sales price of a nonfinancial asset that meets the criteria in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). 10. j If the hedged transaction is the forecasted purchase or sale of a financial asset or liability (or the interest payments on that financial asset or liability) or the variable cash inflow or outflow of an existing financial asset or liability, the designated risk being hedged is any of the following: 1. 1 The risk of overall changes in the hedged cash flows related to the asset or liability, such as those relating to all changes in the purchase price or sales price (regardless of whether that price and the related cash flows are stated in the entity's functional currency or a foreign currency) 2. 2 For forecasted interest receipts or payments on an existing variable-rate financial instrument, the risk of changes in its cash flows attributable to changes in the contractually specified interest rate (referred to as interest rate risk). For a forecasted issuance or purchase of a debt instrument (or the forecasted interest payments on a debt instrument), the risk of changes in cash flows attributable to changes in the benchmark interest rate or the expected contractually specified interest rate. See paragraphs [815-20-25-19A through 25-19B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A) for further guidance on the designation of interest rate risk in the forecasted issuance or purchase of a debt instrument. 3. 3 The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk) 4. 4 The risk of changes in its cash flows attributable to all of the following (referred to as credit risk): 1. i Default 2. ii Changes in the obligor's creditworthiness 3. iii Changes in the spread over the contractually specified interest rate or benchmark interest rate with respect to the related financial asset's or liability's credit sector at inception of the hedge. If the risk designated as being hedged is not the risk in paragraph [815-20-25-15(j)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), two or more of the other risks (interest rate risk, foreign exchange risk, and credit risk) simultaneously may be designated as being hedged. 11. k The item is not otherwise specifically ineligible for designation (see paragraph [815-20-25-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43)). ##### [815-20-25-15A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:12855123c37c11a72d11f02befe6cc1689fde8584af749e380a823f9efd0b121 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Topic places no limitations on an entity's ability to prospectively designate, dedesignate, and redesignate a qualifying hedge of the same forecasted transaction. ##### [815-20-25-16](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e051f730ad45fcbcf8ec7263a74ec8c50881248c4a400c9897db3a93fefe9ec3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 4 (see paragraph [815-20-55-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-88)) illustrates that how the hedged forecasted transaction is designated and documented in a cash flow hedge is critically important in determining whether it is probable that the hedged forecasted transaction will occur. The following guidance expands on the timing and probability criteria in paragraphs [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) and [815-20-25-15(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15): 1. a Effect of counterparty creditworthiness on probability. An entity using a cash flow hedge shall assess the creditworthiness of the counterparty to the hedged forecasted transaction in determining whether the forecasted transaction is probable, particularly if the hedged transaction involves payments pursuant to a contractual obligation of the counterparty. 2. b Probability of forecasted acquisition of a marketable debt security. To qualify for cash flow hedge accounting for an option designated as a hedge of the forecasted acquisition of a marketable debt security, an entity must be able to establish at the inception of the hedging relationship that the acquisition of the marketable debt security is probable, without regard to the means of acquiring it. In documenting the hedging relationship, the entity shall specify the date on or period within which the forecasted acquisition of the security will occur. The evaluation of whether the forecasted acquisition of a marketable debt security is probable of occurring shall be independent of the terms and nature of the derivative instrument designated as the hedging instrument. Specifically, in determining whether an option designated as a hedge of the forecasted acquisition of a marketable debt security may qualify for cash flow hedge accounting, the probability of the forecasted transaction being consummated shall be evaluated without consideration of whether the option designated as the hedging instrument has an intrinsic value other than zero. 3. c Uncertainty of timing within a range. For forecasted transactions whose timing involves some uncertainty within a range, that range could be documented as the originally specified time period if the hedged forecasted transaction is described with sufficient specificity so that when a transaction occurs, it is clear whether that transaction is or is not the hedged transaction. As long as it remains probable that a forecasted transaction will occur by the end of the originally specified time period, cash flow hedge accounting for that hedging relationship would continue. See paragraph [815-30-40-4](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-4) for related guidance and Example 5 (see paragraph [815-20-55-100](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-100)), which illustrates the application of this paragraph. 4. d Importance of timing in both documentation and hedge effectiveness. Although documenting only the period within which the forecasted transaction will occur is sufficient to comply with the requirements of paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), compliance with Section 815-20-35 and paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) requires that the best estimate of the forecasted transaction's timing be both documented and used in assessing hedge effectiveness. As explained in paragraphs [815-20-25-84](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) and [815-20-25-120 through 25-121](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-120) , the time value of money is likely to be important in the assessment of cash flow hedge effectiveness, especially if the entity plans to use a rollover or tailing strategy to hedge its forecasted transaction. The use of time value of money requires information about the timing of cash flows. 5. e The term _probable_ requires a significantly greater likelihood of occurrence than the phrase _more likely than not_. 6. f The cash flow hedging model does not require that it be probable that any variability in the hedged transaction will actually occur—that is, in a cash flow hedge, the variability in future cash flows must be a possibility, but not necessarily a probability. However, the hedging derivative must be highly effective at achieving offsetting cash flows whenever that variability in future interest does occur. ##### [815-20-25-17](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:82234996018a467aaf1b6571f21683582787ff96f29b0f1becdf715f3c77fad2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Subtopic, the phrase _issuance of fixed-rate debt_ includes the issuance of a zero-coupon instrument because the interest element in a zero-coupon instrument is fixed at its issuance. ##### [815-20-25-18](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8e6b0c99d19db5ccc5856440bb2c6097012165810664832af9c5a36021f6eb57 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Provided the entity meets all the other cash flow hedging criteria, an entity may designate as the hedged risk the risk of changes in either of the following: 1. a The coupon payments (or the interest element of the final cash flow if interest is paid only at maturity) related to the forecasted issuance of fixed-rate debt 2. b The total proceeds attributable to changes in the benchmark interest rate related to the forecasted issuance of fixed-rate debt. The derivative instrument used to hedge either of these risks must provide offsetting cash flows for the hedging relationship to be effective in accordance with paragraph [815-20-35-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-3). ##### [815-20-25-19](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b90f4c1b253ded54b77ce893bcd119a5b0e8a6c63d1cf43c6059c428927ca04c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall not characterize its variable-rate debt as fixed-rate debt that, at each interest reset date, is effectively rolled over to another issuance of fixed-rate debt that has a new fixed interest rate until the next reset date. ##### [815-20-25-19A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:652ba5e92b1c2d492b52540f75995ef1c7e70559b701a647c1d67da5e2df7376 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [815-20-25-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-6), if an entity designates a cash flow hedge of interest rate risk attributable to the variability in cash flows of a forecasted issuance or purchase of a debt instrument, it shall specify the nature of the interest rate risk being hedged as follows: 1. a If an entity expects that it will issue or purchase a fixed-rate debt instrument, the entity shall designate the variability in cash flows attributable to changes in the benchmark interest rate as the hedged risk. 2. b If an entity expects that it will issue or purchase a variable-rate debt instrument, the entity shall designate the variability in cash flows attributable to changes in the contractually specified interest rate as the hedged risk. ##### [815-20-25-19B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-19B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:57c65e5f3e87ef1fbf26a8df716d985070deddd8de5afe33f715dd0759b2df23 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity does not know at the inception of the hedging relationship whether the debt instrument that will be issued or purchased will be fixed rate or variable rate, the entity shall designate as the hedged risk the variability in cash flows attributable to changes in a rate that would qualify both as a benchmark interest rate if the instrument issued or purchased is fixed rate and as a contractually specified interest rate if the instrument issued or purchased is variable rate. ##### [815-20-25-20](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fb663449ccc87c02350aeed6096848d93a43be5093ffd6f9bceb2655f4829b78 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-15(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) does not require that hedged variable interest payments relate to a specific unchanging obligation or group of variable-rate obligations if those obligations are prepayable. Example 7 (see paragraph [815-20-55-106](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-106)) illustrates this principle. ##### [815-20-25-21](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:6aba1a5e73797d7fa647892b1f9208bf9a0a75611005f61cbee1e482d1150a7c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-10-15-4](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-4) states that, if a contract meets the definition of both a derivative instrument and a firm commitment under the Derivatives and Hedging Topic (as illustrated in Example 8 \[see paragraph [815-20-55-111](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-111)\]), then an entity shall account for the contract as a derivative instrument unless one of the exceptions in this Topic applies. In that circumstance, either of the following may be true: 1. a The forecasted transaction and the derivative instrument used to hedge it are with the same counterparty. 2. b The derivative instrument is the same contract under which the entity executes the forecasted transaction. ##### [815-20-25-22](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:12d648565ec85bcba6fef34fef32d1272f2f37e0ad58969a17f5e5d2bd13e5c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assuming other cash flow hedge criteria are met, a derivative instrument that will involve gross settlement may be designated as the hedging instrument in a cash flow hedge of the variability of the consideration to be paid or received in a forecasted transaction that will occur upon gross settlement of the derivative instrument itself (an [all-in-one hedge](https://asc.understandingaccounting.org/glossary/a/#all-in-one-hedge "In an all-in-one hedge, a derivative instrument that will involve gross settlement is designated as the hedging instrument in a cash flow hedge of the variability of the consideration to be paid or received in the forecasted transaction that will occur upon gross settlement of the derivative instrument itself.")). This guidance applies to fixed-price contracts to acquire or sell a nonfinancial or financial asset that are accounted for as derivative instruments under this Topic provided the criteria for a cash flow hedge are met. ##### [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fe0d6137aaa6d86a8bbdfabfab65f24043747e9616b7fc26ca6a1c17aade41be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For existing contracts, determining whether the variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") may be designated as the hedged risk in a cash flow hedge is based on the following: 1. a If the contract to purchase or sell a nonfinancial asset is a derivative in its entirety and an entity applies the normal purchases and normal sales scope exception in accordance with Subtopic 815-10, any contractually specified component in the contract is eligible to be designated as the hedged risk. If the entity does not apply the normal purchases and normal sales scope exception, no pricing component is eligible to be designated as the hedged risk. 2. b If the contract to purchase or sell a nonfinancial asset is not a derivative in its entirety, any contractually specified component remaining in the host contract (that is, the contract to purchase or sell a nonfinancial asset after any embedded derivatives have been bifurcated in accordance with Subtopic 815-15) is eligible to be designated as the hedged risk. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)
Editor's Note: The heading that precedes paragraph 815-20-25-22A will be amended upon transition as shown below, and the content of the paragraph will be superseded.
• • > Eligibility Criteria for Designating the Variability in Cash Flows Attributable to Changes in a Component (or Subcomponent) of the Purchase Price or Sales Price of a Nonfinancial Asset as the Hedged Risk
[Paragraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) ##### [815-20-25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:61a21f12fae8bbfea09e6932a7142b843fa87559d525bd2c5d5cae64ac5864e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate the variability in cash flows attributable to changes in a contractually specified component in accordance with paragraph [815-20-25-15(i)(3)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) to purchase or sell a nonfinancial asset for a period longer than the contractual term or for a not-yet-existing contract to purchase or sell a nonfinancial asset if the entity expects that the requirements in paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) will be met when the contract is executed. Once the contract is executed, the entity shall apply the guidance in paragraph [815-20-25-22A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) to determine whether the variability in cash flows attributable to changes in the contractually specified component can continue to be designated as the hedged risk. See paragraphs [815-20-55-26A through 55-26E](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-26A) for related implementation guidance. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)[Paragraph superseded by Accounting Standards Update No. 2025-09.](https://asc.understandingaccounting.org/updates/asu-2025-09/) ##### [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:030bb30b42a5a50fa197560a6e3b95aa9cde83346cc210db12ed3557443cf7f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)An entity may designate the variability in cash flows attributable to changes in a component (or subcomponent) of the forecasted purchase price or sales price of a nonfinancial asset as the hedged risk in a cash flow hedge as follows: 1. a If the purchase price or sales price of the nonfinancial asset is not determined in accordance with a pricing formula in an agreement, the hedged variable component is clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to the nonfinancial asset being purchased or sold. 2. b If the purchase price or sales price of the nonfinancial asset is determined in accordance with a pricing formula in an agreement, the hedged variable component is either of the following: 1. 1 Explicitly referenced in the agreement’s pricing formula and clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to the nonfinancial asset being purchased or sold 2. 2 Clearly and closely related (as described in paragraph [815-10-15-32(a) through (b)](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-32)) to a variable component that meets the conditions in (b)(1) (that is, a “subcomponent”). (Throughout Subtopic 815-20, reference to a subcomponent refers only to the designation guidance in this subparagraph.) ##### [815-20-25-23](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9c3ecc27b789144f93672417f96ab5f709ba88fc183d6823d566a2036dad8de7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the functional currency concept of Topic 830, exposure to a foreign currency exists only in relation to a specific operating unit's designated functional currency cash flows. Therefore, exposure to foreign currency risk shall be assessed at the unit level. ##### [815-20-25-24](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:69b548ee8d75eced91c5f8867d69266f87877d8b3e52fb8404aefe0bd0d280ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A unit has exposure to foreign currency risk only if it enters into a transaction (or has an exposure) denominated in a currency other than the unit's functional currency. ##### [815-20-25-25](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:7bcd173c5280a7a12d69f0edfd0c0965a5e65937a6715104bb134e0ce6b48aae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Due to the requirement in Topic 830 for remeasurement of assets and liabilities denominated in a foreign currency into the unit's functional currency, changes in exchange rates for those currencies will give rise to exchange gains or losses, which results in direct foreign currency exposure for the unit but not for the parent entity if its functional currency differs from its unit's functional currency. ##### [815-20-25-26](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2e2175bd9b1452a43c765a33be628e36d8e21876c90ff5a529da43c132d740f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The functional currency concepts of Topic 830 are relevant if the foreign currency exposure being hedged relates to any of the following: 1. a An unrecognized foreign-currency-denominated firm commitment 2. b A recognized foreign-currency-denominated asset or liability 3. c A foreign-currency-denominated forecasted transaction 4. d The forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability 5. e A net investment in a foreign operation. ##### [815-20-25-27](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1a3d85c8208e8a1e15b6389dc2f758fe7289072b1b816480e7ec19e8aa2d687e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because a parent entity whose functional currency differs from its subsidiary's functional currency is not directly exposed to the risk of exchange rate changes due to a subsidiary transaction that is denominated in a currency other than a subsidiary's functional currency, the parent cannot qualify for hedge accounting for a hedge of that risk. Accordingly, a parent entity that has a different functional currency cannot qualify for hedge accounting for direct hedges of a subsidiary's recognized asset or liability, unrecognized firm commitment or forecasted transaction denominated in a currency other than the subsidiary's functional currency. Also, a parent that has a different functional currency cannot qualify for hedge accounting for a hedge of a net investment of a first-tier subsidiary in a second-tier subsidiary. ##### [815-20-25-28](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c0cff2c758ec76b7020723bee5412ac0a74f096cbb07dc81caa6508d5b67b434 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the hedged item is denominated in a foreign currency, an entity may designate any of the following types of hedges of foreign currency exposure: 1. a A fair value hedge of an unrecognized firm commitment or a recognized asset or liability (including an available-for-sale debt security) 2. b A cash flow hedge of any of the following: 1. 1 A forecasted transaction 2. 2 An unrecognized firm commitment 3. 3 The forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability 4. 4 A forecasted intra-entity transaction. 3. c A hedge of a net investment in a foreign operation. ##### [815-20-25-29](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a8c0e3ed9bd66b428fdebeba01d158bc1e06531eeb5ac66b5e2af6b29c55fd6f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The recognition in earnings of the foreign currency transaction gain or loss on a foreign-currency-denominated asset or liability based on changes in the foreign currency [spot rate](https://asc.understandingaccounting.org/glossary/s/#spot-rate "The exchange rate for immediate delivery of currencies exchanged.") is not considered to be the remeasurement of that asset or liability with changes in fair value attributable to foreign exchange risk recognized in earnings, which is discussed in the criteria in paragraphs [815-20-25-15(d)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) and [815-20-25-43(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43). Thus, those criteria are not impediments to either of the following: 1. a A foreign currency fair value or cash flow hedge of such a foreign-currency-denominated asset or liability 2. b A foreign currency cash flow hedge of the forecasted acquisition or incurrence of a foreign-currency-denominated asset or liability whose carrying amount will be remeasured at spot exchange rates under paragraph [830-20-35-1](https://asc.understandingaccounting.org/asc/830/20/#830-20-35-1). ##### [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2bf83632f32e0e9f05655b370f89496f21843fd3b17908d6c0de3edad549f897 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Both of the following conditions shall be met for foreign currency cash flow hedges, foreign currency fair value hedges, and hedges of the net investment in a foreign operation: 1. a For consolidated financial statements, either of the following conditions is met: 1. 1 The operating unit that has the foreign currency exposure is a party to the hedging instrument. 2. 2 Another member of the consolidated group that has the same functional currency as that operating unit is a party to the hedging instrument and there is no intervening subsidiary with a different functional currency. See guidance beginning in paragraph [815-20-25-52](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-52) for conditions under which an intra-entity foreign currency derivative can be the hedging instrument in a cash flow hedge of foreign exchange risk. 2. b The hedged transaction is denominated in a currency other than the hedging unit's functional currency. ##### [815-20-25-31](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a6c170e83073037fe83e94be5b27f165a6cdb4a67d4ecbedfd9c9d92777c700a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, a subsidiary may enter into an intra-entity hedging instrument with the parent entity, and that contract can be a hedging instrument in the consolidated financial statements if the parent entity enters into an offsetting contract (pursuant to paragraph [815-20-25-52](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-52) for the appropriate hedging relationship) with an unrelated third party to hedge the exposure it acquired from issuing the derivative instrument to the subsidiary that initiated the hedge. ##### [815-20-25-32](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:632863c8574ae54d8787325808bdc14db3dfeec8c2935835236d4ee6d0ed13d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a subsidiary has the same functional currency as the parent entity or other member of the consolidated group, the parent entity or that other member of the consolidated group may, subject to certain restrictions, enter into a derivative instrument or nonderivative instrument that is designated as the hedging instrument in a hedge of that subsidiary's foreign exchange risk in consolidated financial statements. ##### [815-20-25-33](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1aefb77ef2239d03d8723f071077ecf330b4ad7ce5137907e3bafe5155f91207 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In some instances, it may not be practical or feasible to hedge in the same currency and, therefore, a hedging instrument also may be denominated in a currency for which the exchange rate generally moves in tandem with the exchange rate for the currency in which the hedged item is denominated. ##### [815-20-25-34](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b9fa4e20d4cbb75ce9d9679b7bc5a0abfad8728385ca1a4a63a0b915b2b4d2f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The provisions of this Section (including paragraph [815-20-25-28](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-28)) that permit a recognized foreign-currency-denominated asset or liability to be the hedged item in a fair value or cash flow hedge of foreign currency exposure also pertain to a recognized foreign-currency-denominated receivable or payable that results from a hedged forecasted foreign-currency-denominated sale or purchase on credit. Specifically, an entity may choose to designate either of the following: 1. a A single cash flow hedge that encompasses the variability of functional currency cash flows attributable to foreign exchange risk related to the settlement of the foreign-currency-denominated receivable or payable resulting from a forecasted sale or purchase on credit 2. b Both of the following separate hedges: 1. 1 A cash flow hedge of the variability of functional currency cash flows attributable to foreign exchange risk related to a forecasted foreign-currency-denominated sale or purchase on credit 2. 2 A foreign currency fair value hedge of the resulting recognized foreign-currency-denominated receivable or payable. ##### [815-20-25-35](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2dd0c2d2a4d58cdee906a0e25c6ed8421040358b3a919fb1a0c6bc04afd5830e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If two separate hedges are designated, the cash flow hedge would terminate (that is, be dedesignated) when the hedged sale or purchase occurs and the foreign-currency-denominated receivable or payable is recognized. ##### [815-20-25-36](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c296100abf1f677abeb904c48b6df2ed42c2c4f26b781f4ff32669d7753aa6de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The use of the same foreign currency derivative instrument for both the cash flow hedge and the fair value hedge is not prohibited. ##### [815-20-25-37](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ccc5a4fbb864c3c19e3ca47192b2665a74fab8270d70ee7b5ab2d52773378c7d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This paragraph identifies possible hedged items in fair value hedges of foreign exchange risk. If every applicable criterion is met, all of the following are eligible for designation as a hedged item in a fair value hedge of foreign exchange risk: 1. a Recognized asset or liability. A derivative instrument can be designated as hedging the changes in the fair value of a recognized asset or liability (or a specific portion thereof) for which a foreign currency transaction gain or loss is recognized in earnings under the provisions of paragraph [830-20-35-1](https://asc.understandingaccounting.org/asc/830/20/#830-20-35-1). All recognized foreign-currency-denominated assets or liabilities for which a foreign currency transaction gain or loss is recorded in earnings shall qualify for the accounting specified in Subtopic 815-25 if all the fair value hedge criteria in this Section (including the conditions in paragraph [815-20-25-30(a) through (b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30)) are met. 2. b Available-for-sale debt security. A derivative instrument can be designated as hedging the changes in the fair value of an available-for-sale debt security (or a specific portion thereof) attributable to changes in foreign currency exchange rates. The designated hedging relationship qualifies for the accounting specified in Subtopic 815-25 if all the fair value hedge criteria in this Section (including the conditions in paragraph [815-20-25-30(a) through (b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30)) are met. 3. c [Subparagraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). 4. d Unrecognized firm commitment. Paragraph [815-20-25-58](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) states that a derivative instrument or a nonderivative financial instrument that may give rise to a foreign currency transaction gain or loss under Topic 830 can be designated as hedging changes in the fair value of an unrecognized firm commitment, or a specific portion thereof, attributable to foreign currency exchange rates. ##### [815-20-25-38](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:896c3f25cd0d8b36b1e0122ae656e7e8a59491b8104c8e62ecae483cc0ee38f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The conditions in the following paragraph relate to a derivative instrument designated as hedging the foreign currency exposure to variability in the functional-currency-equivalent cash flows associated with any of the following: 1. a A forecasted transaction (for example, a forecasted export sale to an unaffiliated entity with the price to be denominated in a foreign currency) 2. b A recognized asset or liability 3. c An unrecognized firm commitment 4. d A forecasted intra-entity transaction (for example, a forecasted sale to a foreign subsidiary or a forecasted royalty from a foreign subsidiary). ##### [815-20-25-39](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ab99e1d95198d722d98174946a5ec43dfa1dc4e4ae6bc9653c665c3c3644866f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A hedging relationship of the type described in the preceding paragraph qualifies for hedge accounting if all the following criteria are met: 1. a The criteria in paragraph [815-20-25-30(a) through (b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) are met. 2. b All of the cash flow hedge criteria in this Section otherwise are met, except for the criterion in paragraph [815-20-25-15(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) that requires that the forecasted transaction be with a party external to the reporting entity. 3. c If the hedged transaction is a group of individual forecasted foreign-currency-denominated transactions, a forecasted inflow of a foreign currency and a forecasted outflow of the foreign currency cannot both be included in the same group. 4. d If the hedged item is a recognized foreign-currency-denominated asset or liability, all the variability in the hedged item's functional-currency-equivalent cash flows shall be eliminated by the effect of the hedge. ##### [815-20-25-40](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1c6f4866d8fa2de05d4c727cc05df6ed22731c58774df43983f9b993d1879681 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of item (d) in the preceding paragraph, an entity shall not specifically exclude a risk from the hedge that will affect the variability in cash flows. For example, a cash flow hedge cannot be used with a variable-rate foreign-currency-denominated asset or liability and a derivative instrument based solely on changes in exchange rates because the derivative instrument does not eliminate all the variability in the functional currency cash flows. As long as no element of risk that affects the variability in foreign-currency-equivalent cash flows has been specifically excluded from a foreign currency cash flow hedge and the hedging instrument is highly effective at providing the necessary offset in the variability of all cash flows, a less-than-perfect hedge would meet the requirement in (d) in the preceding paragraph. That criterion does not require that the derivative instrument used to hedge the foreign currency exposure of the forecasted foreign-currency-equivalent cash flows associated with a recognized asset or liability be perfectly effective, rather it is intended to ensure that the hedging relationship is highly effective at offsetting all risks that impact the variability of cash flows. ##### [815-20-25-41](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:d1eb7fc7e764b297a88fc05b083c076fd05d1dffc83b7880b32c5231f3646c56 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If all of the variability of the functional-currency-equivalent cash flows is eliminated as a result of the hedge (as required by paragraph [815-20-25-39(d)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-39)), an entity can use cash flow hedge accounting to hedge the variability in the functional-currency-equivalent cash flows associated with any of the following: 1. a All of the payments of both principal and interest of a foreign-currency-denominated asset or liability 2. b All of the payments of principal of a foreign-currency-denominated asset or liability 3. c All or a fixed portion of selected payments of either principal or interest of a foreign-currency-denominated asset or liability 4. d Selected payments of both principal and interest of a foreign-currency-denominated asset or liability (for example, principal and interest payments on December 31, 20X1, and December 31, 20X3). ##### [815-20-25-42](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4caf98997acf832bd8549a3f43df52e213235b5539e9770f5edf2fbf061eab7b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The reference in the definition of a forecasted transaction indicating that a forecasted transaction is not a firm commitment focuses on firm commitments that have no variability. The reference does not preclude a cash flow hedge of the variability in functional-currency-equivalent cash flows if the commitment's fixed price is denominated in a foreign currency. Although that definition of a firm commitment requires a fixed price, it permits the fixed price to be denominated in a foreign currency. A firm commitment can expose the parties to variability in their functional-currency-equivalent cash flows. The definition of a forecasted transaction also indicates that the transaction or event will occur at the prevailing market price. From the perspective of the hedged risk (foreign exchange risk), the translation of the foreign currency proceeds from the sale of the nonfinancial assets will occur at the prevailing market price (that is, current exchange rate). Example 14 (see paragraph [815-20-55-136](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-136)) illustrates the application of this guidance. ##### [815-20-25-43](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c2005f6e9758fa878af12f35bab8392d898f7d61832cc16527f2b4ecbe972479 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Besides those hedged items and transactions that fail to meet the specified eligibility criteria, none of the following shall be designated as a hedged item or transaction in the respective hedges: 1. a [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 2. b With respect to both fair value hedges and cash flow hedges: 1. 1 An investment accounted for by the equity method in accordance with the requirements of Subtopic 323-10 or in accordance with the requirements of Topic 321 2. 2 A [noncontrolling interest](https://asc.understandingaccounting.org/glossary/n/#noncontrolling-interest "The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest.") in one or more consolidated subsidiaries 3. 3 Transactions with stockholders as stockholders, such as either of the following: 1. i Projected purchases of treasury stock 2. ii Payments of dividends. 4. 4 Intra-entity transactions (except for foreign-currency-denominated forecasted intra-entity transactions) between entities included in consolidated financial statements 5. 5 The price of stock expected to be issued pursuant to a stock option plan for which recognized compensation expense is not based on changes in stock prices after the date of grant. 3. c With respect to fair value hedges only: 1. 1 If the entire asset or liability is an instrument with variable cash flows, an implicit fixed-to-variable swap (or similar instrument) perceived to be embedded in a host contract with fixed cash flows 2. 2 For a held-to-maturity debt security, the risk of changes in its fair value attributable to interest rate risk 3. 3 An asset or liability that is remeasured with the changes in fair value attributable to the hedged risk reported currently in earnings 4. 4 An equity investment in a consolidated subsidiary 5. 5 A firm commitment either to enter into a business combination or to acquire or dispose of a subsidiary, a noncontrolling interest, or an equity method investee 6. 6 An equity instrument issued by the entity and classified in stockholders' equity in the statement of financial position 7. 7 A component of an embedded derivative in a hybrid instrument—for example, embedded options in a [hybrid instrument](https://asc.understandingaccounting.org/glossary/h/#hybrid-instrument "A contract that embodies both an embedded derivative and a host contract.") that are required to be considered a single forward contract under paragraph [815-10-25-10](https://asc.understandingaccounting.org/asc/815/10/#815-10-25-10) cannot be designated as items hedged individually in a fair value hedge in which the hedging instrument is a separate, unrelated freestanding option. 4. d With respect to cash flow hedges only: 1. 1 [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 2. 2 If variable cash flows of the forecasted transaction relate to a debt security that is classified as held-to-maturity under Topic 320, the risk of changes in its cash flows attributable to interest rate risk 3. 3 [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-44](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9ea1b2b900c8dda756ff99187a7914861ad2600286ff89575b00a6d9dd1a22d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The earnings exposure criterion specifically precludes hedge accounting for derivative instruments used to hedge items in (b)(3) through (b)(5) in the preceding paragraph. However, intra-entity transactions may present an earnings exposure for a subsidiary in its freestanding financial statements; a hedge of an intra-entity transaction would be eligible for hedge accounting for purposes of those statements. #### Eligibility of Hedging Instruments ##### [815-20-25-45](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:34da35f43183011a1c3fc6c6ad75c9933b4b94248c65e90184df2b9052abcd30 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Either all or a proportion of a derivative instrument (including a compound embedded derivative that is accounted for separately) may be designated as a hedging instrument. Two or more derivative instruments, or proportions thereof, may also be viewed in combination and jointly designated as the hedging instrument. A proportion of a derivative instrument or derivative instruments designated as the hedging instrument shall be expressed as a percentage of the entire derivative instrument(s) so that the profile of risk exposures in the hedging portion of the derivative instrument(s) is the same as that in the entire derivative instrument(s). Subsequent references in the Derivatives and Hedging Topic to a derivative instrument as a hedging instrument include the use of only a proportion of a derivative instrument as a hedging instrument. Whether a written option may be designated as a hedging instrument depends on the terms of both the hedging instrument and the hedged item as discussed beginning in paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). ##### [815-20-25-46](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:48481c80b5fcd04f84c13a1f9c60dfc5bbe1007306803fc02716b12231943cb3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The eligibility criteria for hedging instruments are organized as follows: 1. a [Intra-entity derivatives](https://asc.understandingaccounting.org/glossary/i/#intra-entity-derivative "A derivative instrument contract between two members of a consolidated group.") 2. b [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 3. c Hedging instrument in a cash flow hedge of basis risk 4. d Hedging instruments in hedges of foreign exchange risk 5. e Instruments specifically ineligible for designation as hedging instruments. ##### [815-20-25-46A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ba118a04de21a4b8d1878b11038860a6dc1ecca5ca8a435ed1cfb9f2af5e8253 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is no requirement in this Subtopic that the operating unit with the interest rate, market price, or credit risk exposure be a party to the hedging instrument. Thus, for example, a parent entity's central treasury function can enter into a derivative instrument with a third party and designate it as the hedging instrument in a hedge of a subsidiary's interest rate risk for purposes of the consolidated financial statements. However, if the subsidiary wishes to qualify for hedge accounting of the interest rate exposure in its separate-entity financial statements, the subsidiary (as the reporting entity) shall be a party to the hedging instrument, which can be an intra-entity derivative obtained from the central treasury function. Thus, an intra-entity derivative for interest rate risk can qualify for designation as the hedging instrument in separate-entity financial statements but not in consolidated financial statements. (As used in this guidance, the term _subsidiary_ refers only to a consolidated subsidiary. This guidance shall not be applied directly or by analogy to an equity method investee.) ##### [815-20-25-46B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cf1fd020c06447d821dab308e35b515a6419225f9ad42bdec8c8d55a77929285 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An intra-entity derivative shall not be designated as the hedging instrument if the hedged risk is any of the following: 1. a The risk of changes in the overall fair value or cash flows of the entire hedged item or transaction 2. b The risk of changes in hedged item's or transaction's fair value attributable to changes in the designated benchmark interest rate or cash flows attributable to changes in the contractually specified interest rate or designated benchmark interest rate 3. c The risk of changes in hedged item's or transaction's fair value or cash flows attributable to changes in credit risk. 4. d The risk of variability in cash flows attributable to changes in a contractually specified component to purchase or sell a nonfinancial asset. Similarly, a derivative instrument contract between operating units within a single legal entity shall not be designated as the hedging instrument in a hedge of those risks. Only a derivative instrument with an unrelated third party can be designated as the hedging instrument in a hedge of those risks in consolidated financial statements. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)An intra-entity derivative shall not be designated as the hedging instrument if the hedged risk is any of the following: 1. a The risk of changes in the overall fair value or cash flows of the entire hedged item or transaction 2. b The risk of changes in hedged item's or transaction's fair value attributable to changes in the designated benchmark interest rate or cash flows attributable to changes in the contractually specified interest rate or designated benchmark interest rate 3. c The risk of changes in hedged item's or transaction's fair value or cash flows attributable to changes in credit risk. 4. d The risk of variability in cash flows attributable to changes in a component (or subcomponent) of the price to purchase or sell a nonfinancial asset that meets the conditions in paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). Similarly, a derivative instrument contract between operating units within a single legal entity shall not be designated as the hedging instrument in a hedge of those risks. Only a derivative instrument with an unrelated third party can be designated as the hedging instrument in a hedge of those risks in consolidated financial statements. ##### [815-20-25-47](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:d5e3a5bed3dca3fee575bc3266025a80df591e4182e3eafb12f2c26511402aac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-48](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5358264556cd2fba39173526ef593efbf83ddec3004c0e0e9017d7d51bc98393 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-49](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:997472ea31a06dc34bf5eef26b96b50dc206db60d72d75b9d6dd129f59e1b88d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-50](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9b1ffdd3c02cf558452cee32a6ec33298b3d60e023ab8a6f3f5127db4331c1c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a hedging instrument is used to modify the contractually specified interest receipts or payments associated with a recognized financial asset or liability from one variable rate to another variable rate, the hedging instrument shall meet both of the following criteria: 1. a It is a link between both of the following: 1. 1 An existing designated asset (or group of similar assets) with variable cash flows 2. 2 An existing designated liability (or group of similar liabilities) with variable cash flows. 2. b It is highly effective at achieving offsetting cash flows. ##### [815-20-25-51](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:abb0cd9cf5f763cb0dbfc433621a2454173f95c175728c2d0d922e98ac9dd947 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of paragraph [815-20-25-50](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-50), a link exists if both of the following criteria are met: 1. a The basis (that is, the rate index on which the interest rate is based) of one leg of an interest rate swap is the same as the basis of the contractually specified interest receipts for the designated asset. 2. b The basis of the other leg of the swap is the same as the basis of the contractually specified interest payments for the designated liability. In this situation, the criterion in paragraph [815-20-25-15(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15) is applied separately to the designated asset and the designated liability. ##### [815-20-25-51A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-51A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:01bb24194b23841f037173fc01532159b73641d74077d35fb4255a4c97611cf0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance on hedging instruments in hedges of foreign exchange risk is organized as follows: 1. a Intra-entity derivatives 2. b Hedging instruments in fair value hedges involving foreign exchange risk 3. c Internal derivatives as hedging instruments in cash flow hedges of foreign exchange risk 4. d Hedging instruments in net investment hedges. ##### [815-20-25-52](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:3efcaf5a5db691d7a34e76ddab121d4a59ea2f1f029e7f4aad4684248df7fffe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A foreign currency derivative instrument that has been entered into with another member of a consolidated group can be a hedging instrument in any of the following hedging relationships only if that other member of the consolidated group has entered into an offsetting contract with an unrelated third party to hedge the exposure it acquired from issuing the derivative instrument to the affiliate that initiated the hedge: 1. a A fair value hedge 2. b A cash flow hedge of a recognized foreign-currency-denominated asset or liability 3. c A net investment hedge in the consolidated financial statements. ##### [815-20-25-53](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9c432ba5513cebce6768afbb40a110af6ab9bdb1d48c4c47073cda4787d9f4ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-46A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46A) states that there is no requirement in this Subtopic that the operating unit with the interest rate, market price, or credit risk exposure be a party to the hedging instrument and provides related guidance. ##### [815-20-25-54](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a66961ca579ef7eefbde1ff1443cf043fcd6b698bc39143a1736968b7df7eee7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An intra-entity derivative can be designated as a hedging instrument in consolidated financial statements if condition (a) is met and either condition (b) or (c) is met: 1. a The hedged risk is either of the following: 1. 1 The risk of changes in fair value or cash flows attributable to changes in a foreign currency exchange rate 2. 2 The foreign exchange risk for a net investment in a foreign operation. 2. b In a fair value hedge or in a cash flow hedge of a recognized foreign-currency-denominated asset or liability or in a net investment hedge in the consolidated financial statements the counterparty (that is, the other member of the consolidated group) has entered into a contract with an unrelated third party that offsets the intra-entity derivative completely, thereby hedging the exposure it acquired from issuing the intra-entity derivative to the affiliate that designated the hedge. 3. c In a foreign currency cash flow hedge of a forecasted borrowing, purchase, or sale or an unrecognized firm commitment the counterparty has entered into a derivative instrument with an unrelated third party to offset the exposure that results from that [internal derivative](https://asc.understandingaccounting.org/glossary/i/#internal-derivative "A foreign currency derivative instrument that has been entered into with another member of a consolidated group (such as a treasury center).") or, if the conditions in paragraphs [815-20-25-62 through 25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) are met, entered into derivative instruments with unrelated third parties that would offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivative instruments. ##### [815-20-25-55](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cd6f47f31873284caba4b933cfbbc1db27300e45d92ff008c4f3891d8441682e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The designation of intra-entity derivatives as hedging instruments for hedges of foreign exchange risk enables entities to continue using a central treasury function for derivative instruments with third parties and still comply with the requirement in paragraph [815-20-25-30(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) that the operating unit with the foreign currency exposure be a party to the hedging instrument. ##### [815-20-25-56](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-56) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2316f6a5da755ab88bd38765cc32000c511fcc427676e781a96e0db6623a0f27 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-46B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-46B) states that an intra-entity derivative shall not be designated as the hedging instrument in other circumstances and provides related guidance. ##### [815-20-25-57](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e0b71618682615ef438ab2b526bf5f91a789299781ca622d13bf19b54fa7db33 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-58](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:26aaa492d744677c94a502ae06a0bcaaf77b0adeba450181b89c7d22137370a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A derivative instrument or a nonderivative [financial instrument](https://asc.understandingaccounting.org/glossary/f/#financial-instrument "Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. All contractual rights (contractual obligations) that are financial instruments meet the definition of asset (liability) set forth in FASB Concepts Statement No. 6, Elements of Financial Statements, although some may not be recognized as assets (liabilities) in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity. (P) December 16, 2024; (N) December 16, 2025105-10-65-9Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. Some contractual rights (contractual obligations) that are financial instruments may not be recognized in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity.") that may give rise to a foreign currency transaction gain or loss under Topic 830 can be designated as hedging changes in the fair value of an unrecognized firm commitment, or a specific portion thereof, attributable to foreign currency exchange rates. The designated hedging relationship qualifies for the accounting specified in Subtopic 815-25 if all the fair value hedge conditions in this Section and the conditions in paragraph [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) are met. ##### [815-20-25-59](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-59) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:68b35762f5fc6708055e59199fe156a2286bad63a732f3789bb9fdeb19c68b0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The carrying basis for a nonderivative financial instrument that gives rise to a foreign currency transaction gain or loss under Subtopic 830-20 is not addressed by this Subtopic. ##### [815-20-25-60](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-60) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fd934e0f11e75faa53702f07216530867bb8222f9ce8c67f2f888f5d25d1eda9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate an intra-entity loan or other payable as the hedging instrument in a foreign currency fair value hedge of an unrecognized firm commitment and qualify for hedge accounting in the consolidated financial statements. That designation is consistent with the ability under paragraphs [815-20-25-58 through 25-59](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) to designate nonderivative instruments as hedging instruments in foreign currency fair value hedges of firm commitments. However, hedge accounting in the consolidated financial statements shall only be applied if the member of the consolidated entity that is the counterparty to the intra-entity loan has entered into a third-party contract that offsets the foreign exchange exposure of that entity's intra-entity loan receivable. That is, the requirement in paragraphs [815-20-25-28 through 25-29](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-28) that an intra-entity derivative instrument designated as a hedging instrument in a foreign currency fair value hedge be offset by a third-party contract would also apply to intra-entity nonderivative instruments designated as hedging instruments. To remain consistent with the notion that the intra-entity contract is simply a conduit for the third-party exposure, an intra-entity loan designated as a hedging instrument shall be offset by a third-party loan (that is, it shall not be offset by a derivative instrument). Hedge accounting shall be applied in consolidation only to those gains and losses occurring during the period that the offsetting third-party loan is in place. ##### [815-20-25-61](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-61) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:52826f2fe4230b2fdcd91b722c23a09cddc095abaf60cca5b7c419f46ffcbd7e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An internal derivative can be a hedging instrument in a foreign currency cash flow hedge of a forecasted borrowing, purchase, or sale or an unrecognized firm commitment in the consolidated financial statements only if both of the following conditions are satisfied: 1. a From the perspective of the member of the consolidated group using the derivative instrument as a hedging instrument (the hedging affiliate), the criteria for foreign currency cash flow hedge accounting otherwise specified in this Section are satisfied. 2. b The member of the consolidated group not using the derivative instrument as a hedging instrument (the issuing affiliate) either: 1. 1 Enters into a derivative instrument with an unrelated third party to offset the exposure that results from that internal derivative 2. 2 If the conditions in paragraphs [815-20-25-62 through 25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) are met, enters into derivative instruments with unrelated third parties that would offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivative instruments. In complying with this guidance the issuing affiliate could enter into a third-party position with neither leg of the third-party position being the issuing affiliate's functional currency to offset its exposure if the amount of the respective currencies of each leg are equivalent with respect to each other based on forward exchange rates. ##### [815-20-25-62](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:690be9c93daded6fd2f420457dd980d70cdd3fc02f2eaba6ca29817a68f3aa71 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an issuing affiliate chooses to offset exposure arising from multiple internal derivatives on an aggregate or net basis, the derivative instruments issued to hedging affiliates shall qualify as cash flow hedges in the consolidated financial statements only if all of the following conditions are satisfied: 1. a The issuing affiliate enters into a derivative instrument with an unrelated third party to offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivatives. 2. b The derivative instrument with the unrelated third party generates equal or closely approximating gains and losses when compared with the aggregate or net losses and gains generated by the derivative instruments issued to affiliates. 3. c Internal derivatives that are not designated as hedging instruments are excluded from the determination of the foreign currency exposure on a net basis that is offset by the third-party derivative instrument. Nonderivative contracts shall not be used as hedging instruments to offset exposures arising from internal derivatives. 4. d Foreign currency exposure that is offset by a single net third-party contract arises from internal derivatives that mature within the same 31-day period and that involve the same currency exposure as the net third-party derivative instrument. The offsetting net third-party derivative instrument related to that group of contracts shall meet all of the following criteria: 1. 1 It offsets the aggregate or net exposure to that currency. 2. 2 It matures within the same 31-day period. 3. 3 It is entered into within three business days after the designation of the internal derivatives as hedging instruments. 5. e The issuing affiliate meets both of the following conditions: 1. 1 It tracks the exposure that it acquires from each hedging affiliate. 2. 2 It maintains documentation supporting linkage of each internal derivative and the offsetting aggregate or net derivative instrument with an unrelated third party. 6. f The issuing affiliate does not alter or terminate the offsetting derivative instrument with an unrelated third party unless the hedging affiliate initiates that action. ##### [815-20-25-63](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:875c9385a2b09d4c085b6a2f81d52b85943b387086be16dae7face92d79fbf93 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the issuing affiliate alters or terminates any offsetting third-party derivative (which should be rare), the hedging affiliate shall prospectively cease hedge accounting for the internal derivatives that are offset by that third-party derivative instrument. ##### [815-20-25-64](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0777370bb65650c6d6ec32d9c8072f6e90337026b62b3cb50c5fa10912fef39d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A member of a consolidated group cannot meet the offsetting criteria by offsetting exposures arising from multiple internal derivative contracts on a net basis for foreign currency cash flow exposures related to recognized foreign-currency-denominated assets or liabilities. That prohibition includes situations in which a recognized foreign-currency-denominated asset or liability in a fair value hedge or cash flow hedge results from the occurrence of a specifically identified forecasted transaction initially designated as a cash flow hedge. ##### [815-20-25-65](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1a5926a4d323c80986a227d07677e22564b0ee4ae5974e9b9d6b2197f4279421 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A qualifying foreign currency cash flow hedge shall be accounted for as specified in Subtopic 815-30. ##### [815-20-25-66](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e3a45140a39de68d36ab4f0340923ec8caa02941a37095f1e619aeef3f0b2948 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A derivative instrument or a nonderivative financial instrument that may give rise to a foreign currency transaction gain or loss under Subtopic 830-20 can be designated as hedging the foreign currency exposure of a net investment in a foreign operation provided the conditions in paragraph [815-20-25-30](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-30) are met. A nonderivative financial instrument that is reported at fair value does not give rise to a foreign currency transaction gain or loss under Subtopic 830-20 and, thus, cannot be designated as hedging the foreign currency exposure of a net investment in a foreign operation. ##### [815-20-25-67](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f9c5ac8d59f30f6787e6015f95265799c84734df32bc788b594e5e5c85242d53 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Hedging instruments that are eligible for designation in a net investment hedge include, among others, both of the following: 1. a A receive-variable-rate, pay-variable-rate cross-currency interest rate swap, provided both of the following conditions are met: 1. 1 The interest rates are based on the same currencies contained in the swap. 2. 2 Both legs of the swap have the same repricing intervals and dates. 2. b A receive-fixed-rate, pay-fixed-rate cross-currency interest rate swap. A cross-currency interest rate swap that has two fixed legs is not a compound derivative instrument and, therefore, is not subject to the criteria in (a). ##### [815-20-25-68](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b90f8deb9cd7f6d41eb11a86435daa36420c7a9e7b386a51c5e8df7ccceb8504 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A cross-currency interest rate swap that has either two variable legs or two fixed legs has a fair value that is primarily driven by changes in foreign exchange rates rather than changes in interest rates. Therefore, foreign exchange risk, rather than interest rate risk, is the dominant risk exposure in such a swap. ##### [815-20-25-68A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-68A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:664f3be325257ce16cc3862540ee30e7ac6a92d2c122140da54899df8c2595cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the guidance in paragraph [815-20-25-71(d)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-71), a cross-currency interest rate swap with one fixed-rate leg and one floating-rate leg cannot be designated as the hedging instrument in a net investment hedge. ##### [815-20-25-69](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:141d83308fe708628a917ee6ffa111f9ddf604254493f268d98b8387b713df8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To designate a derivative instrument as a hedge of a net investment, an entity shall have an expectation that the derivative instrument will be effective as an economic hedge of foreign exchange risk associated with the hedged net investment. Accordingly, if any difference in [notional amount](https://asc.understandingaccounting.org/glossary/n/#notional-amount "A number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument. Sometimes other names are used. For example, the notional amount is called a face amount in some contracts."), currencies, or underlyings is present, the entity shall establish an expectation that the actual derivative instrument designated as the hedging instrument will be effective as an economic hedge. ##### [815-20-25-70](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a2f3fea8d5128412cf7522c50c775a0a0e77e5d3bf0d0311786eb7b2315ce71c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, if an entity designates a derivative instrument that has an underlying exchange rate involving a currency other than the functional currency of the net investment, that exchange rate shall be expected to move in tandem with the exchange rate between the functional currency of the hedged net investment and the investor's functional currency. Use of a currency different from the exposed currency is not limited to cases in which it is not practical or feasible to hedge in the exposed currency if all other qualifying criteria are met. ##### [815-20-25-71](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-71) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e64aa2d718335f0e86d7bdbb2c26f36350e8baf87b09c2a42ddadfb7a54a7179 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Besides those hedging instruments that fail to meet the specified eligibility criteria, none of the following shall be designated as a hedging instrument for the respective hedges: 1. a With respect to fair value hedges, cash flow hedges, and net investment hedges: 1. 1 A nonderivative instrument, such as a U.S. Treasury note, except as provided in paragraphs [815-20-25-58 through 25-59](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-58) and [815-20-25-66](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-66) 2. 2 Components of a compound derivative instrument representing different risks 3. 3 A hybrid financial instrument that an entity irrevocably elects under paragraph [815-15-25-4](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-4) to initially and subsequently measure in its entirety at fair value (with changes in fair value recognized in earnings) 4. 4 A hybrid instrument for which an entity cannot reliably identify and measure the embedded derivative instrument that paragraph [815-15-25-1](https://asc.understandingaccounting.org/asc/815/15/#815-15-25-1) requires be separated from the host contract 5. 5 Any of the individual components of a compound embedded derivative that is separated from the host contract. 2. b With respect to fair value hedges only: 1. 1 A nonderivative financial instrument as the hedging instrument in a fair value hedge of the foreign currency exposure of a recognized asset or liability. 2. 2 A nonderivative financial instrument as the hedging instrument in a fair value hedge of the foreign currency exposure of an available-for-sale debt security. 3. c With respect to cash flow hedges only: 1. 1 A nonderivative financial instrument as a hedging instrument in a foreign currency cash flow hedge. 4. d With respect to net investment hedges only: 1. 1 A compound derivative instrument that has multiple underlyings—one based on foreign exchange risk and one or more not based on foreign exchange (for example, the price of gold or the price of an S&P 500 contract), except as indicated in paragraph [815-20-25-67](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-67) for certain cross-currency interest rate swaps 2. 2 A derivative instrument and a cash instrument in combination as a single hedging instrument (that is, an entity shall not consider a separate derivative instrument and a cash instrument as a single synthetic instrument for accounting purposes) 3. 3 [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). #### Hedge Effectiveness ##### [815-20-25-72](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-72) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:eb74b327bc6fa212ff30257d76d58b4ed535e08f0a0a57fc17b4c8106828d17c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedge effectiveness criteria are organized as follows: 1. a Hedge effectiveness criteria applicable to both fair value hedges and cash flow hedges 2. b Hedge effectiveness criterion applicable to fair value hedges only 3. c Hedge effectiveness criteria applicable to cash flow hedges only 4. d [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-73](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-73) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:a5e112096713f1e905e6791b038b288b3b2e5a353b08bf92582d563542fcfbc9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Sections 815-25-55 and 815-30-55 illustrate some ways in which an entity may assess hedge effectiveness for specific strategies. The Examples are not intended to imply that other reasonable methods are precluded. However, not all possible methods are reasonable or consistent with this Subtopic. Those Sections also discuss some methods of assessing hedge effectiveness that are not consistent with this Subtopic and thus may not be used. ##### [815-20-25-74](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-74) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e9f5690d9d43b997df8857a1d4101cfc4a5806186f7ffb1874eba61ae26cbc09 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses hedge effectiveness criteria applicable to both fair value hedges and cash flow hedges. ##### [815-20-25-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5e9d19b9a596193d6b62e33588d2302ad15083e7423bdbfdf2024c3daf7379fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To qualify for hedge accounting, the hedging relationship, both at inception of the hedge and on an ongoing basis, shall be expected to be highly effective in achieving either of the following: 1. a Offsetting changes in fair value attributable to the hedged risk during the period that the hedge is designated (if a fair value hedge) 2. b Offsetting cash flows attributable to the hedged risk during the term of the hedge (if a cash flow hedge), except as indicated in paragraph [815-20-25-50](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-50). ##### [815-20-25-76](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-76) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5377f887b5d0146838dc0392c95a61b0c3f6bea87f4d137f60cb8ae9a6855645 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the hedging instrument (such as an at-the-money option contract) provides only one-sided offset of the hedged risk, either of the following conditions shall be met: 1. a The increases (or decreases) in the fair value of the hedging instrument are expected to be highly effective in offsetting the decreases (or increases) in the fair value of the hedged item (if a fair value hedge). 2. b The cash inflows (outflows) from the hedging instrument are expected to be highly effective in offsetting the corresponding change in the cash outflows or inflows of the hedged transaction (if a cash flow hedge). ##### [815-20-25-77](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-77) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5aa976eadc917a70de037d91484855d71831348ebd484b3974ee4d451432704b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There would be a mismatch between the change in fair value or cash flows of the hedging instrument and the change in fair value or cash flows of the hedged item or hedged transaction in any of the following circumstances, among others: 1. a A difference between the basis of the hedging instrument and the hedged item or hedged transaction, to the extent that those bases do not move in tandem 2. b Differences in critical terms of the hedging instrument and hedged item or hedged transaction, such as differences in any of the following: 1. 1 Notional amounts 2. 2 Maturities 3. 3 Quantity 4. 4 Location (not applicable for hedging relationships in which the variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") is designated as the hedged risk) 5. 5 Delivery dates. 3. c A change in the counterparty's creditworthiness. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)There would be a mismatch between the change in fair value or cash flows of the hedging instrument and the change in fair value or cash flows of the hedged item or hedged transaction in any of the following circumstances, among others: 1. a A difference between the basis of the hedging instrument and the hedged item or hedged transaction, to the extent that those bases do not move in tandem 2. b Differences in critical terms of the hedging instrument and hedged item or hedged transaction, such as differences in any of the following: 1. 1 Notional amounts 2. 2 Maturities 3. 3 Quantity 4. 4 Location (not applicable if the hedging instrument’s underlying and the designated hedged risk are the same) 5. 5 Delivery dates. 3. c A change in the counterparty's creditworthiness. ##### [815-20-25-78](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-78) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:60e19f449f97c5d0d5a18b92cc73b88c47cd8851506da30eb74ce6e79694d385 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-55-62](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-62) discusses basis differences in cash flow hedges of interest rate risk. ##### [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:d040771907845b4778b4928c97290e64b8305bb4eb31a0ba2f7b8cd3e60186ec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall consider hedge effectiveness in two different ways—in prospective considerations and in retrospective evaluations: 1. a Prospective considerations. The entity's expectation that the relationship will be highly effective over future periods in achieving offsetting changes in fair value or cash flows, which is forward looking, must be assessed on a quantitative basis at hedge inception unless one of the exceptions in paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) is met. Prospective assessments shall be subsequently performed whenever financial statements or earnings are reported and at least every three months. The entity shall elect at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) whether to perform subsequent assessments on a quantitative or qualitative basis. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of hedge effectiveness. A quantitative assessment can be based on regression or other statistical analysis of past changes in fair values or cash flows as well as on other relevant information. The quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the period used to assess whether the requirement for expectation of highly effective offset is satisfied. The quantitative prospective assessment may not be limited only to the likely or expected changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument or the hedged items. Generally, the process of formulating an expectation regarding the effectiveness of a proposed hedging relationship involves a probability-weighted analysis of the possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the hedge period. Therefore, a probable future change in fair value will be more heavily weighted than a reasonably possible future change. That calculation technique is consistent with the definition of the term [expected cash flow](https://asc.understandingaccounting.org/glossary/e/#expected-cash-flow "The probability-weighted average (that is, mean of the distribution) of possible future cash flows.") in FASB Concepts Statement No. 7, _Using Cash Flow Information and Present Value in Accounting Measurements_. 2. b Retrospective evaluations. An assessment of effectiveness may be performed on a quantitative or qualitative basis on the basis of the entity's election at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). That assessment shall be performed whenever financial statements or earnings are reported, and at least every three months. See paragraphs [815-20-35-2 through 35-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2) for further guidance. At inception of the hedge, an entity electing a dollar-offset approach to perform retrospective evaluations on a quantitative basis may choose either a period-by-period approach or a cumulative approach in designating how effectiveness of a fair value hedge or of a cash flow hedge will be assessed retrospectively under that approach, depending on the nature of the hedge documented in accordance with paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). For example, an entity may decide that the cumulative approach is generally preferred, yet may wish to use the period-by-period approach in certain circumstances. See paragraphs [815-20-35-5 through 35-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-5) for further guidance. Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance: [105-10-65-9](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-9)An entity shall consider hedge effectiveness in two different ways—in prospective considerations and in retrospective evaluations: 1. a Prospective considerations. The entity's expectation that the relationship will be highly effective over future periods in achieving offsetting changes in fair value or cash flows, which is forward looking, must be assessed on a quantitative basis at hedge inception unless one of the exceptions in paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) is met. Prospective assessments shall be subsequently performed whenever financial statements or earnings are reported and at least every three months. The entity shall elect at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) whether to perform subsequent assessments on a quantitative or qualitative basis. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of hedge effectiveness. A quantitative assessment can be based on regression or other statistical analysis of past changes in fair values or cash flows as well as on other relevant information. The quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the period used to assess whether the requirement for expectation of highly effective offset is satisfied. The quantitative prospective assessment may not be limited only to the likely or expected changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument or the hedged items. Generally, the process of formulating an expectation regarding the effectiveness of a proposed hedging relationship involves a probability-weighted analysis of the possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the hedge period. Therefore, a probable future change in fair value will be more heavily weighted than a reasonably possible future change. That calculation technique is consistent with the definition of the term [expected cash flow](https://asc.understandingaccounting.org/glossary/e/#expected-cash-flow "The probability-weighted average (that is, mean of the distribution) of possible future cash flows."). 2. b Retrospective evaluations. An assessment of effectiveness may be performed on a quantitative or qualitative basis on the basis of the entity's election at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). That assessment shall be performed whenever financial statements or earnings are reported, and at least every three months. See paragraphs [815-20-35-2 through 35-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2) for further guidance. At inception of the hedge, an entity electing a dollar-offset approach to perform retrospective evaluations on a quantitative basis may choose either a period-by-period approach or a cumulative approach in designating how effectiveness of a fair value hedge or of a cash flow hedge will be assessed retrospectively under that approach, depending on the nature of the hedge documented in accordance with paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). For example, an entity may decide that the cumulative approach is generally preferred, yet may wish to use the period-by-period approach in certain circumstances. See paragraphs [815-20-35-5 through 35-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-5) for further guidance. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)An entity shall consider hedge effectiveness in two different ways—in prospective considerations and in retrospective evaluations: 1. a Prospective considerations. The entity's expectation that the relationship will be highly effective over future periods in achieving offsetting changes in fair value or cash flows, which is forward looking, must be assessed on a quantitative basis at hedge inception unless one of the exceptions in paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) is met. Prospective assessments shall be subsequently performed whenever financial statements or earnings are reported and at least every three months. The entity shall elect at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) whether to perform subsequent assessments on a quantitative or qualitative basis. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of hedge effectiveness. A quantitative assessment can be based on regression or other statistical analysis of past changes in fair values or cash flows as well as on other relevant information. Except as described in paragraph [815-20-25-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79B), the quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the period used to assess whether the requirement for expectation of highly effective offset is satisfied. The quantitative prospective assessment may not be limited only to the likely or expected changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument or the hedged items. Generally, the process of formulating an expectation regarding the effectiveness of a proposed hedging relationship involves a probability-weighted analysis of the possible changes in fair value (if a fair value hedge) or in fair value or cash flows (if a cash flow hedge) of the derivative instrument and the hedged items for the hedge period. Therefore, a probable future change in fair value will be more heavily weighted than a reasonably possible future change. That calculation technique is consistent with the definition of the term [expected cash flow](https://asc.understandingaccounting.org/glossary/e/#expected-cash-flow "The probability-weighted average (that is, mean of the distribution) of possible future cash flows."). 2. b Retrospective evaluations. An assessment of effectiveness may be performed on a quantitative or qualitative basis on the basis of the entity's election at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). That assessment shall be performed whenever financial statements or earnings are reported, and at least every three months. See paragraphs [815-20-35-2 through 35-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2) for further guidance. At inception of the hedge, an entity electing a dollar-offset approach to perform retrospective evaluations on a quantitative basis may choose either a period-by-period approach or a cumulative approach in designating how effectiveness of a fair value hedge or of a cash flow hedge will be assessed retrospectively under that approach, depending on the nature of the hedge documented in accordance with paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). For example, an entity may decide that the cumulative approach is generally preferred, yet may wish to use the period-by-period approach in certain circumstances. See paragraphs [815-20-35-5 through 35-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-5) for further guidance. See paragraphs [815-30-35-37F](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37F) and [815-30-35-37L through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37L) for guidance on the retrospective effectiveness assessment for a cash flow hedge within the scope of paragraph [815-30-35-37B](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) related to choose-your-rate debt. ##### [815-20-25-79A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79A) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:bda0bbf3b633a36d612cc1146bbc054f9546a09fa7913cb11737c2a577807fa1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [815-20-25-139 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) about the timing of hedge effectiveness assessments required by paragraph [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) for a private company that is not a financial institution or a not-for-profit entity (except for a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market). Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)See paragraphs [815-20-25-139 through 25-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) about the timing of hedge effectiveness assessments required by paragraph [815-20-25-79](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) for a private company that is not a financial institution or a not-for-profit entity (except for a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market). ##### [815-20-25-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79B) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:537e5d759f8d2a9499460b6a1608c5f4f6de988c9d5fb81742d33c6e44be7758 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)For a cash flow hedge of forecasted interest payments on a choose-your-rate debt instrument for which an entity chooses to apply the guidance in paragraphs [815-30-35-37B through 35-37M](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-37B) , the quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in cash flows of the forecasted transaction attributable to only the then-designated contractually specified interest rate. An entity shall not consider possible changes in cash flows of the forecasted transaction attributable to a contractually specified interest rate that may be designated in the future. The quantitative prospective assessment of hedge effectiveness shall consider all reasonably possible changes in cash flows of the derivative instrument in accordance with paragraph [815-20-25-79(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79). ##### [815-20-25-80](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-80) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ac8d5cc2cf5421e2b1810ea863f7c78e7690b67a773c965c1705c12787486d37 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All assessments of effectiveness shall be consistent with the originally documented risk management strategy for that particular hedging relationship. An entity shall use the quantitative effectiveness assessment method defined at hedge inception consistently for the periods that the entity either elects or is required to assess hedge effectiveness on a quantitative basis. 1. a [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-81](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:40033f69337bbb43358a94b34357ef8bb1c596b4c197415fae9e6ee69eb43d9c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic does not specify a single method for assessing whether a hedge is expected to be highly effective. The method of assessing effectiveness shall be reasonable. The appropriateness of a given method of assessing hedge effectiveness depends on the nature of the risk being hedged and the type of hedging instrument used. Ordinarily, an entity shall assess effectiveness for similar hedges in a similar manner, including whether a component of the gain or loss on a derivative instrument is excluded in assessing effectiveness for similar hedges. Use of different methods for similar hedges shall be justified. The mechanics of isolating the change in [time value of an option](https://asc.understandingaccounting.org/glossary/t/#time-value-of-an-option "The time value of an option is equal to the fair value of an option less its intrinsic value.") discussed beginning in paragraph [815-20-25-98](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-98) also shall be applied consistently. ##### [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2b9bfbbd742fe827d8794e4876f2a6f7545781a03c76eb1b1ead79751683b691 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In defining how hedge effectiveness will be assessed, an entity shall specify whether it will include in that assessment all of the gain or loss on a hedging instrument. An entity may exclude all or a part of the hedging instrument's time value from the assessment of hedge effectiveness, as follows: 1. a If the effectiveness of a hedge with an option is assessed based on changes in the option's intrinsic value, the change in the time value of the option would be excluded from the assessment of hedge effectiveness. 2. b If the effectiveness of a hedge with an option is assessed based on changes in the option's minimum value, that is, its intrinsic value plus the effect of discounting, the change in the volatility value of the contract shall be excluded from the assessment of hedge effectiveness. 3. c An entity may exclude any of the following components of the change in an option's time value from the assessment of hedge effectiveness: 1. 1 The portion of the change in time value attributable to the passage of time (theta) 2. 2 The portion of the change in time value attributable to changes due to volatility (vega) 3. 3 The portion of the change in time value attributable to changes due to interest rates (rho). 4. d If the effectiveness of a hedge with a forward contract or futures contract is assessed based on changes in fair value attributable to changes in spot prices, the change in the fair value of the contract related to the changes in the difference between the spot price and the forward or futures price shall be excluded from the assessment of hedge effectiveness. 5. e An entity may exclude the portion of the change in fair value of a currency swap attributable to a cross-currency basis spread. ##### [815-20-25-83](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4043837c3bd320e8ee1e5a97c2307790342c28f347532ede0f794084339d31db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. No other components of a gain or loss on the designated hedging instrument shall be excluded from the assessment of hedge effectiveness nor shall an entity exclude any aspect of a change in an option's value from the assessment of hedge effectiveness that is not one of the permissible components of the change in an option's time value. For example, an entity shall not exclude from the assessment of hedge effectiveness the portion of the change in time value attributable to changes in other market variables (that is, other than rho and vega). ##### [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8feccd926d0f927faf6dee1b979cfe8838a63454395f5e4f740e0355687d13a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For fair value and cash flow hedges, the initial value of the component excluded from the assessment of effectiveness shall be recognized in earnings using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and amounts recognized in earnings under that systematic and rational method shall be recognized in other comprehensive income. Example 31 beginning in paragraph [815-20-55-235](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-235) illustrates this approach for a cash flow hedge in which the hedging instrument is an option and the entire time value is excluded from the assessment of effectiveness. ##### [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:6c0cd81a8d1a848bc97f4d6fd432f39f054760b1c575652575d21befcbef70c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For fair value and cash flow hedges, an entity alternatively may elect to record changes in the fair value of the excluded component currently in earnings. This election shall be applied consistently to similar hedges in accordance with paragraph [815-20-25-81](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) and shall be disclosed in accordance with paragraph [815-10-50-4EEEE](https://asc.understandingaccounting.org/asc/815/10/#815-10-50-4EEEE). ##### [815-20-25-84](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fa5884cc573fd2532416b76c7599cd4a8c7c566342bf8565cb12b20f28241b6a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the critical terms of the hedging instrument and of the hedged item or hedged forecasted transaction are the same, the entity could conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. For example, an entity may assume that a hedge of a forecasted purchase of a commodity with a forward contract will be perfectly effective if all of the following criteria are met: 1. a The forward contract is for purchase of the same quantity of the same commodity at the same time and location as the hedged forecasted purchase. Location differences do not need to be considered if an entity designates the variability in cash flows attributable to changes in a [contractually specified component](https://asc.understandingaccounting.org/glossary/c/#contractually-specified-component "An index or price explicitly referenced in an agreement to purchase or sell a nonfinancial asset other than an index or price calculated or measured solely by reference to an entity's own operations.(P) December 16, 2026; (N) December 16, 2027815-20-65-7Glossary term superseded by Accounting Standards Update No. 2025-09.") as the hedged risk and the requirements in paragraphs [815-20-25-22A through 25-22B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22A) are met. 2. b The fair value of the forward contract at inception is zero. 3. c Either of the following criteria is met: 1. 1 The change in the discount or premium on the forward contract is excluded from the assessment of effectiveness pursuant to paragraphs [815-20-25-81 through 25-83](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) . 2. 2 The change in expected cash flows on the forecasted transaction is based on the forward price for the commodity. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)If the critical terms of the hedging instrument and of the hedged item or hedged forecasted transaction are the same, the entity could conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. For example, an entity may assume that a hedge of a forecasted purchase of a commodity with a forward contract will be perfectly effective if all of the following criteria are met: 1. a The forward contract is for purchase of the same quantity of the same commodity at the same time and location as the hedged forecasted purchase. Location differences do not need to be considered if the forward contract’s underlying and the designated hedged risk are the same. 2. b The fair value of the forward contract at inception is zero. 3. c Either of the following criteria is met: 1. 1 The change in the discount or premium on the forward contract is excluded from the assessment of effectiveness pursuant to paragraphs [815-20-25-81 through 25-83](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) . 2. 2 The change in expected cash flows on the forecasted transaction is based on the forward price for the commodity. ##### [815-20-25-84A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:09e68f61b8cdfb0d6b8cce6d28906ba6568233a3bcbd91581f4126ed2ea32f7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a cash flow hedge of a group of forecasted transactions in accordance with paragraph [815-20-25-15(a)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), an entity may assume that the timing in which the hedged transactions are expected to occur and the maturity date of the hedging instrument match in accordance with paragraph [815-20-25-84(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) if those forecasted transactions occur and the derivative matures within the same 31-day period or fiscal month. ##### [815-20-25-85](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-85) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:538f7c852a10550a4b10ccd47106201cd86a19e8874e68d6df2cca8ae4b8891b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If all of the criteria in paragraphs [815-20-25-84 through 25-84A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) are met, an entity shall still perform and document an assessment of hedge effectiveness at the inception of the hedging relationship and, as discussed beginning in paragraph [815-20-35-9](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-9), on an ongoing basis throughout the hedge period. No quantitative effectiveness assessment is required at hedge inception if the criteria in paragraphs [815-20-25-84 through 25-84A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84) are met (see paragraph [815-20-25-3(b)(2)(iv)(01)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3)). ##### [815-20-25-86](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-86) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f40573f3b119d0a694123795fe27577afa69e9f744ed5f3ef086cb13967686d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The remainder of this guidance on hedge effectiveness criteria applicable to both fair value hedges and cash flow hedges is organized as follows: 1. a Hedge effectiveness when the hedging instrument is an option or combination of options 2. b Hedge effectiveness when hedged exposure is more limited than hedging instrument 3. c Hedge effectiveness during designated hedge period 4. d Assuming perfect effectiveness in a hedge with an interest rate swap (the shortcut method). ##### [815-20-25-87](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-87) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:0dd6aaa1d29fc8b5ea27f42c0054009a3e69bd24fc3cdff97c143858accdfe59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedge effectiveness criteria applicable to options and combinations of options are organized as follows: 1. a Determining whether a combination of options is net written 2. b Hedge effectiveness of written options 3. c Hedge effectiveness of options in general. ##### [815-20-25-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88) Pending content: yes Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f532469c96202e2633164c7b2440a2ff1c46956fe138e6ffe9e2ea80f39f2ad5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses how an entity shall determine whether a combination of options is considered a net written option subject to the requirements of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). A combination of options (for example, an interest rate collar) entered into contemporaneously shall be considered a written option if either at inception or over the life of the contracts a net premium is received in cash or as a favorable rate or other term. Furthermore, a derivative instrument that results from combining a written option and any other non-option derivative instrument shall be considered a written option. The determination of whether a combination of options is considered a net written option depends in part on whether strike prices and notional amounts of the options remain constant. Transition date:(P) December 16, 2026; (N) December 16, 2027Transition guidance: [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7)
Editor's Note: Paragraph 815-20-25-88 will be amended upon transition, together with the preceding headings:
• • > Hedge Effectiveness When the Hedging Instrument Is an Option or Combination of Instruments
• • • > Determining Whether a Combination of Instruments Is Net Written
This guidance addresses how an entity shall determine whether a combination of options is considered a net written option subject to the requirements of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). A combination of options (for example, an interest rate collar) entered into contemporaneously shall be considered a written option if either at inception or over the life of the contracts a net premium is received in cash or as a favorable rate or other term. The determination of whether a combination of options is considered a net written option depends in part on whether strike prices and notional amounts of the options remain constant. Furthermore, a derivative instrument that results from combining a written option and any other non-option derivative instrument shall be considered a written option unless all of the following criteria are satisfied: 1. a The derivative is designated as the hedging instrument in a cash flow hedge or fair value hedge of interest rate risk (including the interest rate risk portion of a hedge of both interest rate risk and foreign exchange risk). 2. b The hedging instrument is a combination of a written option and a swap. 3. c The notional amount of the written option matches the notional amount of the swap. For example, an entity designates a receive-fixed, pay-variable interest rate swap with a 1 percent floor and a variable leg that is indexed to Daily SOFR as the hedging instrument in a cash flow hedge of interest rate risk. The notional amounts of the interest rate swap and the interest rate floor match. The forecasted transactions are designated as the interest payments on a portfolio of variable-rate loans that are indexed to 1-Month Term SOFR with a 1 percent floor. The combination of the interest rate swap and the interest rate floor is not considered a net written option. Therefore, the entity would not apply the net written option test to that hedging relationship. ##### [815-20-25-89](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9f0edcc420ecf7b10ed1b44a24f64324c8476f758495c188461f3f14e30a388e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a combination of options in which the strike price and the notional amount in both the written option component and the purchased option component remain constant over the life of the respective component, that combination of options would be considered a net purchased option or a zero cost collar (that is, the combination shall not be considered a net written option subject to the requirements of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94)) provided all of the following conditions are met: 1. a No net premium is received. 2. b The components of the combination of options are based on the same underlying. 3. c The components of the combination of options have the same maturity date. 4. d The notional amount of the written option component is not greater than the notional amount of the purchased option component. ##### [815-20-25-90](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-90) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4d54d733fc4fcc40719cf41c2c336a475b0e50cd46bad3b98e670d6ee9b7fc3e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the combination of options does not meet all of those conditions, it shall be subject to the test in paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94). For example, a combination of options having different underlying indexes, such as a collar containing a written floor based on three-month U.S. Treasury rates and a purchased cap based on three-month London Interbank Offered Rate (LIBOR), shall not be considered a net purchased option or a zero cost collar even though those rates may be highly correlated. ##### [815-20-25-91](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-91) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:02b8fe12e98c699c7c19b94b07650421c887574c80db61751e5ce9dd946b7cb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If either the written option component or the purchased option component for a combination of options has either strike prices or notional amounts that do not remain constant over the life of the respective component, the assessment to determine whether that combination of options can be considered not to be a written option under paragraph [815-20-25-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88) shall be evaluated with respect to each date that either the strike prices or the notional amounts change within the contractual term from inception to maturity. ##### [815-20-25-92](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-92) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:dfe2fc1fee2ab420b93845089145b9afdf7fc5bbe5bd82620cd8f53bbf6c6b31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Even though that assessment is made on the date that a combination of options is designated as a hedging instrument (to determine the applicability of paragraph [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94)), it shall consider the receipt of a net premium (in cash or as a favorable rate or other term) from that combination of options at each point in time that either the strike prices or the notional amounts change, such as either of the following circumstances: 1. a If strike prices fluctuate over the life of a combination of options and no net premium is received at inception, a net premium will typically be received as a favorable term in one or more reporting periods within the contractual term from inception to maturity. 2. b If notional amounts fluctuate over the life of a combination of options and no net premium is received at inception, a net premium or a favorable term will typically be received in one or more periods within the contractual term from inception to maturity. ##### [815-20-25-93](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-93) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b0447cf22efaf638a3db8e96add10171ca65d69d73b8fc492545b663b716d5ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition, a combination of options in which either the written option component or the purchased option component has either strike prices or notional amounts that do not remain constant over the life of the respective component shall satisfy all of the conditions in paragraph [815-20-25-89](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-89) to be considered not to be a written option (that is, to be considered to be a net purchased option or zero cost collar) under paragraph [815-20-25-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88). For example, if the notional amount of the written option component is greater than the notional amount of the purchased option component at any date that the notional amount changes within the contractual term from inception to maturity, the combination of options shall be considered to be a written option under paragraph [815-20-25-88](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-88) and, thus, subject to the criteria in the following paragraph. ##### [815-20-25-94](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-94) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2053e6e40fb4103cc053c53030b419c6b812c5feca6f2699134ea168b2855183 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a written option is designated as hedging a recognized asset or liability or an unrecognized firm commitment (if a fair value hedge) or the variability in cash flows for a recognized asset or liability or an unrecognized firm commitment (if a cash flow hedge), the combination of the hedged item and the written option provides either of the following: 1. a At least as much potential for gains as a result of a favorable change in the fair value of the combined instruments (that is, the written option and the hedged item, such as an embedded purchased option) as exposure to losses from an unfavorable change in their combined fair value (if a fair value hedge) 2. b At least as much potential for favorable cash flows as exposure to unfavorable cash flows (if a cash flow hedge). ##### [815-20-25-95](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-95) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9bbdaf155e8f8f85805bd616a72ef64664858323cb44211fb6a2f33330c03806 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The written-option test in the preceding paragraph shall be applied only at inception of the hedging relationship and is met if all possible percentage favorable changes in the underlying (from zero percent to 100 percent) would provide either of the following: 1. a At least as much gain as the loss that would be incurred from an unfavorable change in the underlying of the same percentage (if a fair value hedge) 2. b At least as much favorable cash flows as the unfavorable cash flows that would be incurred from an unfavorable change in the underlying of the same percentage (if a cash flow hedge). ##### [815-20-25-96](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-96) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:17c837c1c071484bf771f8e1c91fd25a01c6a14205db98f513a0640cdfcbd560 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The time value of a written option (or net written option) may be excluded from the written-option test if, in defining how hedge effectiveness will be assessed, the entity specifies that it will base that assessment on only changes in the option's intrinsic value. In that circumstance, the change in the time value of the options would be excluded from the assessment of hedge effectiveness in accordance with paragraph [815-20-25-82(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82). ##### [815-20-25-97](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-97) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f9395c364600f0b35fac83cd08e6e70e57325d9cec7f3a1edf259a126da17d4c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When applying the written-option test to determine whether there is symmetry of the gain and loss potential of the combined hedged position for all possible percentage changes in the underlying, an entity is permitted to measure the change in the intrinsic value of the written option (or net written option) combined with the change in fair value of the hedged item. ##### [815-20-25-98](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-98) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4f5f893e0ff85e7d0389e6191629a04b219063ad2c233c3343371fb7937306b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In computing the changes in an option's time value that would be excluded from the assessment of hedge effectiveness, an entity shall use a technique that appropriately isolates those aspects of the change in time value. Generally, to allocate the total change in an option's time value to its different aspects—the passage of time and the market variables—the change in time value attributable to the first aspect to be isolated is determined by holding all other aspects constant as of the beginning of the period. Each remaining aspect of the change in time value is then determined in turn in a specified order based on the ending values of the previously isolated aspects. ##### [815-20-25-99](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-99) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:20adb86ece2bd376fd96d28b0c6c0ff34aae6c83eb3535330c84ca8676431b91 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Based on that general methodology, if only one aspect of the change in time value is excluded from the assessment of hedge effectiveness (for example, theta), that aspect shall be the first aspect for which the change in time value is computed and would be determined by holding all other parameters constant for the period used for assessing hedge effectiveness. However, if more than one aspect of the change in time value is excluded from the assessment of hedge effectiveness (for example, theta and vega), an entity shall determine the amount of that change in time value by isolating each of those two aspects in turn in a prespecified order (one first, the other second). The second aspect to be isolated would be based on the ending value of the first isolated aspect and the beginning values of the remaining aspects. The portion of the change in time value that is included in the assessment of effectiveness shall be determined by deducting from the total change in time value the portion of the change in time value attributable to excluded components. ##### [815-20-25-100](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-100) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:6090095690e93f72a3b42a66cef62f52870ec89e51cbe407280a03cf17697e1c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may designate as the hedging instrument in a fair value hedge or cash flow hedge a derivative instrument that does not have a limited exposure comparable to the limited exposure of the hedged item to the risk being hedged. However, to make that designation, in accordance with paragraph [815-20-25-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75), the entity shall establish that the hedging relationship is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period that the hedge is designated. See paragraph [815-20-25-79(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-79) for additional guidance on prospective considerations of hedge effectiveness in this circumstance. ##### [815-20-25-101](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-101) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8fb77f6e1a4710965b8c67867b999fb71a371212507c00ace2aea50b9530fdba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. It is inappropriate under this Subtopic for an entity to designate a derivative instrument as the hedging instrument if the entity expects that the derivative instrument will not be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period that the hedge is designated, unless the entity has documented undertaking a dynamic hedging strategy in which it has committed itself to an ongoing repositioning strategy for its hedging relationship. ##### [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:bb20404f469747199dafb31023810a175943e0187f90bbb27d4fd2d84339514e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The conditions for the shortcut method do not determine which hedging relationships qualify for hedge accounting; rather, those conditions determine which hedging relationships qualify for a shortcut version of hedge accounting that assumes perfect hedge effectiveness. If all of the applicable conditions in the list in paragraph [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) are met, an entity may assume perfect effectiveness in a hedging relationship of interest rate risk involving a recognized interest-bearing asset or liability (or a firm commitment arising on the trade \[pricing\] date to purchase or issue an interest-bearing asset or liability) and an interest rate swap (or a compound hedging instrument composed of an interest rate swap and a mirror-image call or put option as discussed in paragraph [815-20-25-104\[e\]](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104)) provided that, in the case of a firm commitment, the trade date of the asset or liability differs from its settlement date due to generally established conventions in the marketplace in which the transaction is executed. The shortcut method's application shall be limited to hedging relationships that meet each and every applicable condition. That is, all the conditions applicable to fair value hedges shall be met to apply the shortcut method to a fair value hedge, and all the conditions applicable to cash flow hedges shall be met to apply the shortcut method to a cash flow hedge. A hedging relationship cannot qualify for application of the shortcut method based on an assumption of perfect effectiveness justified by applying other criteria. The verb _match_ is used in the specified conditions in the list to mean _be exactly the same_ or _correspond exactly_. ##### [815-20-25-103](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-103) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c9530a5581728592cc02f3830359278e4a7c4fd3cb1aaab72540d167fdc71d39 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Implicit in the conditions for the shortcut method is the requirement that a basis exist for concluding on an ongoing basis that the hedging relationship is expected to be highly effective in achieving offsetting changes in fair values or cash flows. In applying the shortcut method, an entity shall consider the likelihood of the counterparty's compliance with the contractual terms of the hedging derivative that require the counterparty to make payments to the entity. ##### [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:27e1b964d1e7d9cbc0f08a5b16434c897bb6d38b328f002e13dc1b81926dde41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following conditions apply to both fair value hedges and cash flow hedges: 1. a The notional amount of the interest rate swap matches the principal amount of the interest-bearing asset or liability being hedged. 2. b If the hedging instrument is solely an interest rate swap, the fair value of that interest rate swap at the inception of the hedging relationship must be zero,with one exception. The fair value of the swap may be other than zero at the inception of the hedging relationship only if the swap was entered into at the relationship's inception, the transaction price of the swap was zero in the entity's principal market (or most advantageous market), and the difference between transaction price and fair value is attributable solely to differing prices within the bid-ask spread between the entry transaction and a hypothetical exit transaction. The guidance in the preceding sentence is applicable only to transactions considered _at market_ (that is, transaction price is zero exclusive of commissions and other transaction costs, as discussed in paragraph [820-10-35-9B](https://asc.understandingaccounting.org/asc/820/10/#820-10-35-9B)). If the hedging instrument is solely an interest rate swap that at the inception of the hedging relationship has a positive or negative fair value, but does not meet the one exception specified in this paragraph, the shortcut method shall not be used even if all the other conditions are met. 3. c If the hedging instrument is a compound derivative composed of an interest rate swap and mirror-image call or put option as discussed in (e), the premium for the mirror-image call or put option shall be paid or received in the same manner as the premium on the call or put option embedded in the hedged item based on the following: 1. 1 If the implicit premium for the call or put option embedded in the hedged item is being paid principally over the life of the hedged item (through an adjustment of the interest rate), the fair value of the hedging instrument at the inception of the hedging relationship shall be zero (except as discussed previously in (b) regarding differing prices due to the existence of a bid-ask spread). 2. 2 If the implicit premium for the call or put option embedded in the hedged item was principally paid at inception-acquisition (through an original issue discount or premium), the fair value of the hedging instrument at the inception of the hedging relationship shall be equal to the fair value of the mirror-image call or put option. 4. d The formula for computing net settlements under the interest rate swap is the same for each net settlement. That is, both of the following conditions are met: 1. 1 The fixed rate is the same throughout the term. 2. 2 The variable rate is based on the same index and includes the same constant adjustment or no adjustment. The existence of a [stub period](https://asc.understandingaccounting.org/glossary/s/#stub-period "Interest rate swaps with variable rates based on the London Interbank Offered Rate (LIBOR) typically reset at three-month or six-month intervals. Often, swaps may trade on interim dates that do not correspond to a swap reset date. Calendar dates that are swap reset and payment dates are set by market convention. A swap that resets quarterly may have a first payment period that is shorter than a full quarter, such as 30 days versus 90 days. Because the first payment period is not equal to a full quarter, it is referred to as a stub period. That stub period is the period that begins on the date coupon payments begin to accrue and ends on the first payment date.") and [stub rate](https://asc.understandingaccounting.org/glossary/s/#stub-rate "The stub rate is the variable rate that corresponds to the length of a stub period.") is not a violation of the criterion in (d) that would preclude application of the shortcut method if the stub rate is the variable rate that corresponds to the length of the stub period. 5. e The interest-bearing asset or liability is not prepayable, that is, able to be settled by either party before its scheduled maturity, or the assumed maturity date if the hedged item is measured in accordance with paragraph [815-25-35-13B](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13B), with the following qualifications: 1. 1 This criterion does not apply to an interest-bearing asset or liability that is prepayable solely due to an embedded call option (put option) if the hedging instrument is a compound derivative composed of an interest rate swap and a mirror-image call option (put option). 2. 2 The call option embedded in the interest rate swap is considered a mirror image of the call option embedded in the hedged item if all of the following conditions are met: 1. i The terms of the two call options match exactly, including all of the following: 1. 01 Maturities 2. 02 Strike price (that is, the actual amount for which the debt instrument could be called) and there is no termination payment equal to the deferred debt issuance costs that remain unamortized on the date the debt is called 3. 03 Related notional amounts 4. 04 Timing and frequency of payments 5. 05 Dates on which the instruments may be called. 2. ii The entity is the writer of one call option and the holder (purchaser) of the other call option. 3. iii [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 6. f [Subparagraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). 7. g Any other terms in the interest-bearing financial instruments or interest rate swaps meet both of the following conditions: 1. 1 The terms are typical of those instruments. 2. 2 The terms do not invalidate the assumption of perfect effectiveness. ##### [815-20-25-105](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-105) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:782b3ef3fca7f3b4c54f1e53be1ff71a97d3d9fb423d335029a54b7b9efbbb41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following incremental conditions apply to fair value hedges only: 1. a The expiration date of the interest rate swap matches the maturity date of the interest-bearing asset or liability or the assumed maturity date if the hedged item is measured in accordance with paragraph [815-25-35-13B](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-13B). 2. b There is no floor or cap on the variable interest rate of the interest rate swap. 3. c The interval between repricings of the variable interest rate in the interest rate swap is frequent enough to justify an assumption that the variable payment or receipt is at a market rate (generally three to six months or less). 4. d For fair value hedges of a proportion of the principal amount of the interest-bearing asset or liability, the notional amount of the interest rate swap designated as the hedging instrument (see (a) in paragraph [815-20-25-104](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104)) matches the portion of the asset or liability being hedged. 5. e For fair value hedges of portfolios (or proportions thereof) of similar interest-bearing assets or liabilities, both of the following criteria are met: 1. 1 The notional amount of the interest rate swap designated as the hedging instrument matches the aggregate notional amount of the hedged item (whether it is all or a proportion of the total portfolio). 2. 2 The remaining criteria for the shortcut method are met with respect to the interest rate swap and the individual assets or liabilities in the portfolio. 6. f The index on which the variable leg of the interest rate swap is based matches the benchmark interest rate designated as the interest rate risk being hedged for that hedging relationship. ##### [815-20-25-106](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-106) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8a923569dcc13d3324c2a968bcf321acce2e1af1a14dd874b0254a7a75bfaca1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following incremental conditions apply to cash flow hedges only: 1. a All interest receipts or payments on the variable-rate asset or liability during the term of the interest rate swap are designated as hedged. 2. b No interest payments beyond the term of the interest rate swap are designated as hedged. 3. c Either of the following conditions is met: 1. 1 There is no floor or cap on the variable interest rate of the interest rate swap. 2. 2 The variable-rate asset or liability has a floor or cap and the interest rate swap has a floor or cap on the variable interest rate that is comparable to the floor or cap on the variable-rate asset or liability. For purposes of this paragraph, comparable does not necessarily mean equal. For example, if an interest rate swap's variable rate is based on LIBOR and an asset's variable rate is LIBOR plus 2 percent, a 10 percent cap on the interest rate swap would be comparable to a 12 percent cap on the asset. 4. d The repricing dates of the variable-rate asset or liability and the hedging instrument must occur on the same dates and be calculated the same way (that is, both shall be either prospective or retrospective). If the repricing dates of the hedged item occur on the same dates as the repricing dates of the hedging instrument but the repricing calculation for the hedged item is prospective whereas the repricing calculation for the hedging instrument is retrospective, those repricing dates do not match. 5. e For cash flow hedges of the interest payments on only a portion of the principal amount of the interest-bearing asset or liability, the notional amount of the interest rate swap designated as the hedging instrument (see paragraph [815-20-25-104(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104)) matches the principal amount of the portion of the asset or liability on which the hedged interest payments are based. 6. f For a cash flow hedge in which the hedged forecasted transaction is a group of individual transactions (as permitted by paragraph [815-20-25-15(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15)), if both of the following criteria are met: 1. 1 The notional amount of the interest rate swap designated as the hedging instrument (see paragraph [815-20-25-104(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104)) matches the notional amount of the aggregate group of hedged transactions. 2. 2 The remaining criteria for the shortcut method are met with respect to the interest rate swap and the individual transactions that make up the group. For example, the interest rate repricing dates for the variable-rate assets or liabilities whose interest payments are included in the group of forecasted transactions shall match (that is, be exactly the same as) the reset dates for the interest rate swap. 7. g The index on which the variable leg of the interest rate swap is based matches the contractually specified interest rate designated as the interest rate being hedged for that hedging relationship. ##### [815-20-25-107](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-107) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:955eb233637200c6c4839392f652f51071e1a9b9885279dccd3687f41fb3d331 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The shortcut method may be applied to a hedging relationship that involves the use of an interest rate swap-in-arrears provided all of the applicable conditions are met. ##### [815-20-25-108](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-108) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:f7e9a177600c13074aa88a591d35506304b68252e2c9b577fb0a5f2a93d1eb8c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any discount or premium in the hedged debt's carrying amount (including any related deferred issuance costs) is irrelevant to and has no direct impact on the determination of whether an interest rate swap contains a mirror-image call option under paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104). Typically, the call price is greater than the par or [face amount](https://asc.understandingaccounting.org/glossary/f/#face-amount "See Notional Amount.") of the debt instrument. The carrying amount of the debt is economically unrelated to the amount the issuer would be required to pay to exercise the call embedded in the debt. ##### [815-20-25-109](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-109) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:051c46f9ade8d48ae80705b9681f0ac753728b79b3c20aa01f924370a6e23dca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fixed interest rate on a hedged item need not exactly match the fixed interest rate on an interest rate swap designated as a fair value hedge. Nor does the variable interest rate on an interest-bearing asset or liability need to be the same as the variable interest rate on an interest rate swap designated as a cash flow hedge. An interest rate swap's fair value comes from its net settlements. The fixed and variable interest rates on an interest rate swap can be changed without affecting the net settlement if both are changed by the same amount. That is, an interest rate swap with a payment based on LIBOR and a receipt based on a fixed rate of 5 percent has the same net settlements and fair value as an interest rate swap with a payment based on LIBOR plus 1 percent and a receipt based on a fixed rate of 6 percent. ##### [815-20-25-110](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-110) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e9196d0eb14a9088e8404101273cc517c2feb7fbe2a6e1018fe9080c1a932ea5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [815-20-25-111](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-111) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b9f5849d05f28ddbc8d2e2b78cdaff14e9cb8614a37a4ab8d1e79a86ec38c08a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Comparable credit risk at inception is not a condition for assuming perfect effectiveness even though actually achieving perfect offset would require that the same discount rate be used to determine the fair value of the swap and of the hedged item or hedged transaction. To justify using the same discount rate, the credit risk related to both parties to the swap as well as to the debtor on the hedged interest-bearing asset (in a fair value hedge) or the variable-rate asset on which the interest payments are hedged (in a cash flow hedge) would have to be the same. However, because that complication is caused by the interaction of interest rate risk and credit risk, which are not easily separable, comparable creditworthiness is not considered a necessary condition for assuming perfect effectiveness in a hedge of interest rate risk. ##### [815-20-25-112](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-112) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5b2c8aa966d32bc67bd1587ffd4bd297168ae75f27a45997977cbd7424ce99de Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An interest-bearing asset or liability shall be considered prepayable under the provisions of paragraph [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104) if one party to the contract has the right to cause the payment of principal before the scheduled payment dates unless either of the following conditions is met: 1. a The debtor has the right to cause settlement of the entire contract before its stated maturity at an amount that is always greater than the then fair value of the contract absent that right. 2. b The creditor has the right to cause settlement of the entire contract before its stated maturity at an amount that is always less than the then fair value of the contract absent that right. ##### [815-20-25-113](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-113) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:45f9a9c04d9118ff21320bfb73b109ead1a13035e9d73d24052159772a58e48c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, none of the following shall be considered a prepayment provision: 1. a Any term, clause, or other provision in a debt instrument that gives the debtor or creditor the right to cause prepayment of the debt contingent upon the occurrence of a specific event related to the debtor's credit deterioration or other change in the debtor's credit risk, such as any of the following: 1. 1 The debtor's failure to make timely payment, thus making it delinquent 2. 2 The debtor's failure to meet specific covenant ratios 3. 3 The debtor's disposition of specific significant assets (such as a factory) 4. 4 A declaration of cross-default 5. 5 A restructuring by the debtor. 2. b Any term, clause, or other provision in a debt instrument that gives the debtor or creditor the right to cause prepayment of the debt contingent upon the occurrence of a specific event that meets all of the following conditions: 1. 1 It is not probable at the time of debt issuance. 2. 2 It is unrelated to changes in benchmark interest rates, contractually specified interest rates, or any other market variable. 3. 3 It is related either to the debtor's or creditor's death or to regulatory actions, legislative actions, or other similar events that are beyond the control of the debtor or creditor. 3. c Contingent acceleration clauses that permit the debtor to accelerate the maturity of an outstanding note only upon the occurrence of a specified event that meets all of the following conditions: 1. 1 It is not probable at the time of debt issuance. 2. 2 It is unrelated to changes in benchmark interest rates, contractually specified interest rates, or any other market variable. 3. 3 It is related to regulatory actions, legislative actions, or other similar events that are beyond the control of the debtor or creditor. ##### [815-20-25-114](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-114) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c7f34fc5a3e26fdc4771d8f1e443fd452352b23fdeefb8d1fa68a5aaf6a35f06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Furthermore, a right to cause a contract to be prepaid at its then fair value would not cause the interest-bearing asset or liability to be considered prepayable because that right would have a fair value of zero at all times and essentially would provide only liquidity to the holder. ##### [815-20-25-115](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-115) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:fc7c0c16d04bc33f7a4cea734349506beada466bb9e8565dbe4b93a519a3e088 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Application of this guidance to specific debt instruments is illustrated in paragraph [815-20-55-75](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-75). ##### [815-20-25-116](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-116) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b4b6551e5aa983abd891659afebbe7db2e8d0730edd4c051f79d8c5f138bdd3f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Portfolio hedging cannot be used to circumvent the application of the shortcut method criteria beginning in paragraph [815-20-25-102](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-102) to a fair value hedge of an individual interest-bearing asset or liability. A portfolio of interest-bearing assets or interest-bearing liabilities cannot qualify for the shortcut method if it contains an interest-bearing asset or liability that individually cannot qualify for the shortcut method. ##### [815-20-25-117](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:355ddaefaf12791e817818d7f80e00d21623d0dfe1b1588499754991467676be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fair value hedge requirements of paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) ensure that the individual items in a portfolio share the same risk exposure and have fair value changes attributable to the hedged risk that are expected to respond in a generally proportionate manner to the overall fair value changes of the entire portfolio. That requirement restricts the types of portfolios that can qualify for portfolio hedging; however, it also permits the existence of a mismatch between the change in the fair value of the individual hedged items and the change in the fair value of the hedged portfolio attributable to the hedged risk in portfolios that do qualify. As a result, the assumption of perfect effectiveness required for the shortcut method generally is inappropriate for portfolio hedges of similar assets or liabilities that are not also nearly identical (except for their notional amounts). Application of the shortcut method to portfolios that meet the requirements of paragraph [815-20-25-12(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12) is appropriate only if the assets or liabilities in the portfolio meet the same stringent criteria in paragraphs [815-20-25-104(e)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), [815-20-25-104(g)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-104), and [815-20-25-105(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-105) as required for hedges of individual assets and liabilities. ##### [815-20-25-117A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ae7adc81a991ed2de383359a642927928e7b050ba479a379a96b83723e9453ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the period in which an entity determines that use of the shortcut method was not or no longer is appropriate, the entity may use a quantitative method to assess hedge effectiveness and measure hedge results without dedesignating the hedging relationship if both of the following criteria are met: 1. a The entity documented at hedge inception in accordance with paragraph [815-20-25-3(b)(2)(iv)(04)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) which quantitative method it would use to assess hedge effectiveness and measure hedge results if the shortcut method was not or no longer is appropriate during the life of the hedging relationship. 2. b The hedging relationship was highly effective on a prospective and retrospective basis in achieving offsetting changes in fair value or cash flows attributable to the hedged risk for the periods in which the shortcut method criteria were not met. ##### [815-20-25-117B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:398e5fd1e5540d11bebd827876a247f4f727a416be03d567dabfcac669cf618e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the criterion in paragraph [815-20-25-117A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) is not met, the hedging relationship shall be considered invalid in the period in which the criteria for the shortcut method were not met and in all subsequent periods. If the criterion in paragraph [815-20-25-117A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) is met, the hedging relationship shall be considered invalid in all periods in which the criterion in paragraph [815-20-25-117A(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A) is not met. ##### [815-20-25-117C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:b7aea35b3e107b2cb5e12245e9f5e6d3e5b2f47e42e8b54ea6602479e641fc4d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity cannot identify the date on which the shortcut criteria ceased to be met, the entity shall perform the quantitative assessment of effectiveness documented at hedge inception for all periods since hedge inception. ##### [815-20-25-117D](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:d74e5521b471af9d1ec8ceb8622675d2eb9bce4a9e6d1f8b18c4e03b23b4ff24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The terms of the hedged item and hedging instrument used to assess effectiveness, in accordance with paragraph [815-20-25-117A(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-117A), shall be those existing as of the date that the shortcut criteria ceased to be met. For cash flow hedges, if the hypothetical derivative method is used as a proxy for the hedged item, the value of the hypothetical derivative shall be set to zero as of hedge inception. ##### [815-20-25-118](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-118) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c5ccda7c0dc40f4ca97649e9cb2d42a91e6733517241d0028e55fd0d07454e6c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In documenting its risk management strategy for a fair value hedge, an entity may specify an intent to consider the possible changes (that is, not limited to the likely or expected changes) in value of the hedging derivative instrument and the hedged item only over a shorter period than the derivative instrument's remaining life in formulating its expectation that the hedging relationship will be highly effective in achieving offsetting changes in fair value for the risk being hedged. The entity does not need to contemplate the offsetting effect for the entire term of the hedging instrument. ##### [815-20-25-118A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-118A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:5d8b8230b9f0580f692962195c506fc26788efa58157d59f62d248fccfa44d88 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a fair value hedge of interest rate risk designated under the portfolio layer method in accordance with paragraph [815-20-25-12A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-12A), an entity may exclude prepayment risk (if applicable) when measuring the change in fair value of the hedged item attributable to interest rate risk. ##### [815-20-25-119](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-119) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:51e948897d5daa836714742b1e52f2108dbab290bc66cfb91e7bb773a3be9947 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The hedge effectiveness criteria applicable to cash flow hedges only are organized as follows: 1. a Consideration of the time value of money 2. b Consideration of counterparty credit risk 3. c Additional considerations for options in cash flow hedges 4. d Assuming perfect hedge effectiveness in a cash flow hedge of a variable-rate borrowing with a receive-variable, pay-fixed interest rate swap recorded under the simplified hedge accounting approach. ##### [815-20-25-120](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-120) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:342c8d0e0b3bbfc0ca5f1346eec3f5c24aaa02ff33fd0d3ae3bd3f077c778b05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In assessing the effectiveness of a cash flow hedge, an entity generally shall consider the time value of money, especially if the hedging instrument involves periodic cash settlements. ##### [815-20-25-121](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-121) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:25c5c77bea9ced9ae7cf2195e8138506b475df572d95f85ea3b54aa012a45ea9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An example of a situation in which an entity likely would reflect the time value of money is a tailing strategy with futures contracts. When using a tailing strategy, an entity adjusts the size or contract amount of futures contracts used in a hedge so that earnings (or expense) from reinvestment (or funding) of daily settlement gains (or losses) on the futures do not distort the results of the hedge. To assess offset of expected cash flows when a tailing strategy has been used, an entity could reflect the time value of money, perhaps by comparing the present value of the hedged forecasted cash flow with the results of the hedging instrument. ##### [815-20-25-122](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-122) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:908f6294fe9babb161ce6cc3729e6b2a667d6024d25f16d988a76571cc46441b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a cash flow hedge, an entity shall consider the likelihood of the counterparty's compliance with the contractual terms of the hedging derivative instrument that require the counterparty to make payments to the entity. Paragraph [815-20-35-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-14) states that, for an entity to conclude on an ongoing basis that a cash flow hedging relationship is expected to be highly effective in achieving offsetting changes in cash flows, the entity shall not ignore whether it will collect the payments it would be owed under the contractual provisions of the derivative instrument. See paragraphs [815-20-35-14 through 35-18](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-14) for further guidance. ##### [815-20-25-123](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-123) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cd4834fd5b52d7af0111f85635b4186a9f1eec079045eb2a5c15e0a2d4ef0395 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When an entity has documented that the effectiveness of a cash flow hedge will be assessed based on changes in the hedging option's intrinsic value pursuant to paragraph [815-20-25-82(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82), that assessment (and the related cash flow hedge accounting) shall be performed for all changes in intrinsic value—that is, for all periods of time when the option has an intrinsic value, such as when the underlying is above the strike price of the call option. ##### [815-20-25-124](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-124) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:4d55c0107bc76e6611e4316894030611794b6b32af3bf96dd103eb484d13d48e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When a purchased option is designated as a hedging instrument in a cash flow hedge, an entity shall not define only limited parameters for the risk exposure designated as being hedged that would include the time value component of that option. An entity cannot arbitrarily exclude some portion of an option's intrinsic value from the hedge effectiveness assessment simply through an articulation of the risk exposure definition. It is inappropriate to assert that only limited risk exposures are being hedged (for example, exposures related only to currency-exchange-rate changes above $1.65 per pound sterling as illustrated in Example 26 \[see paragraph [815-20-55-205](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-205)\]). ##### [815-20-25-125](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-125) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:945872f9ecb7289246b83648319679bd042fc2545f2cd3dd0b395883ce4892ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an option is designated as the hedging instrument in a cash flow hedge, an entity may assess hedge effectiveness based on a measure of the difference, as of the end of the period used for assessing hedge effectiveness, between the strike price and forward price of the underlying, undiscounted. Although assessment of cash flow hedge effectiveness with respect to an option designated as the hedging instrument in a cash flow hedge shall be performed by comparing the changes in present value of the expected future cash flows of the forecasted transaction to the change in fair value of the derivative instrument (aside from any excluded component under paragraph [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82)), that measure of changes in the expected future cash flows of the forecasted transaction based on forward rates, undiscounted, is not prohibited. With respect to an option designated as the hedging instrument in a cash flow hedge, assessing hedge effectiveness based on a similar measure with respect to the hedging instrument eliminates any difference that the effect of discounting may have on the hedging instrument and the hedged transaction. Pursuant to paragraph [815-20-25-3(b)(2)(iv)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), entities shall document the measure of intrinsic value that will be used in the assessment of hedge effectiveness. As discussed in paragraph [815-20-25-80](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-80), that measure must be used consistently for each period following designation of the hedging relationship. ##### [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:abded50265021ebab2085b6a1711f718333b929002f334d30a2c6170808b234b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in paragraph [815-20-25-129](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) addresses a cash flow hedge that meets all of the following conditions: 1. a The hedging instrument is a purchased option or a combination of only options that comprise either a net purchased option or a zero-cost collar. 2. b The exposure being hedged is the variability in expected future cash flows attributed to a particular rate or price beyond (or within) a specified level (or levels). 3. c The assessment of effectiveness is documented as being based on total changes in the option's cash flows (that is, the assessment will include the hedging instrument's entire change in fair value, not just changes in intrinsic value). ##### [815-20-25-127](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-127) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:9f7fc7b1d4f4ff00abf1ca9caf793d74f6105d9d0a96fce1fa77bf75a0d5c223 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance has no effect on the accounting for fair value hedging relationships. In addition, in determining the accounting for seemingly similar cash flow hedging relationships, it would be inappropriate to analogize to this guidance. ##### [815-20-25-128](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-128) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e34f8cb21c75451c587556645bdaecc175d9c1b8bb2193893698290cf886c5f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a hedging relationship that meets all of the conditions in paragraph [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126), an entity may focus on the hedging instrument's terminal value (that is, its expected future pay-off amount at its maturity date) in determining whether the hedging relationship is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. An entity's focus on the hedging instrument's terminal value is not an impediment to the entity's subsequently deciding to dedesignate that cash flow hedge before the occurrence of the hedged transaction. If the hedging instrument is a purchased cap consisting of a series of purchased caplets that are each hedging an individual hedged transaction in a series of hedged transactions (such as caplets hedging a series of hedged interest payments at different monthly or quarterly dates), the entity may focus on the terminal value of each caplet (that is, the expected future pay-off amount at the maturity date of each caplet) in determining whether each of those hedging relationships is expected to be highly effective in achieving offsetting cash flows. The guidance in this paragraph applies to a purchased option regardless of whether at the inception of the cash flow hedging relationship it is at the money, in the money, or out of the money. ##### [815-20-25-129](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ec0d83a54fbe71048dfeb6d4d67c6f6a1ab14d54a33866e61f6882b44e2b519e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A hedging relationship that meets all of the conditions in paragraph [815-20-25-126](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-126) may be considered to be perfectly effective if all of the following conditions are met: 1. a The critical terms of the hedging instrument (such as its notional amount, underlying, maturity date, and so forth) completely match the related terms of the hedged forecasted transaction (such as the notional amount, the variable that determines the variability in cash flows, the expected date of the hedged transaction, and so forth). 2. b The strike price (or prices) of the hedging option (or combination of options) matches the specified level (or levels) beyond (or within) which the entity's exposure is being hedged. 3. c The hedging instrument's inflows (outflows) at its maturity date completely offset the change in the hedged transaction's cash flows for the risk being hedged. 4. d The hedging instrument can be exercised only on a single date—its contractual maturity date. The condition in (d) is consistent with the entity's focus on the hedging instrument's terminal value. If the holder of the option chooses to pay for the ability to exercise the option at dates before the maturity date (for example, by acquiring an American-style option), the hedging relationship would not be perfectly effective. ##### [815-20-25-129A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cf7949bf9924f9103452ac4f82cffeaf614b93d0593f68aa1998ff575b61a840 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a hedge of a group of forecasted transactions in accordance with paragraph [815-20-25-15(a)(2)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-15), an entity may assume that the timing in which the hedged transactions are expected to occur and the maturity date of the hedging instrument match in accordance with paragraph [815-20-25-129(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-129) if those forecasted transactions occur and the derivative matures within the same 31-day period or fiscal month. ##### [815-20-25-130](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-130) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:47475f8f02c68f80b56f01f59ccf8fdaea3bc7cd4488e07c2f98e45668ab5b4b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in the following paragraph addresses a cash flow hedging relationship that meets both of the following conditions: 1. a A combination of options (deemed to be a net purchased option) is designated as the hedging instrument. 2. b The effectiveness of the hedge is assessed based only on changes in intrinsic value of the hedging instrument (the combination of options). ##### [815-20-25-131](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:502cd12340ed09c9e3d96734132921e7ea3532490f3fadb61f2442b73e1e98b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The assessment of effectiveness of a cash flow hedging relationship meeting the conditions in the preceding paragraph may be based only on changes in the underlying that cause a change in the intrinsic value of the hedging instrument (the combination of options). Thus, the assessment can exclude ranges of changes in the underlying for which there is no change in the hedging instrument's intrinsic value. ##### [815-20-25-131A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:cce07fad35023e360a405d62dbdf50de81edb5ac053a11a4044e5545a447abe6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-03](https://asc.understandingaccounting.org/updates/asu-2016-03/). ##### [815-20-25-131AA](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131AA) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:e11bf93deb36afdb4a56a4edc212c204a969e5e21aecf078dad27bb2ff88ff11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131AB](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131AB) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:95db349bdf7bac54d0240b9fbcdd63dc70524037bb8a05431c84f97a59463162 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:25e939ad407a6a7f11ebb25b29da93e9b54a60cb90a2d6082dd77acfd8c3849a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:42f470415119ceaa3ce3a6db0512043b390e59afc1bd34939bce3b18acb665c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131D](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:44a453bdac780336c09d4877d6d8e8b7164971682c809c6345707b1f72374de1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-131E](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-131E) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:8627830df3b5b0027161043d5a636230913eec31696d2ead660394ea901452a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-25-132](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-132) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ed60f8d7967a7036eea2ac7ca8301c908503e74b9d4c5adfb986506a789d225b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). #### Hedge Accounting Provisions Applicable to Certain Private Companies ##### [815-20-25-133](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-133) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:097123f1af90bd31d62a5674e59db3ffc75c7d24ba281574ba71061335b68dd3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [815-10-35-1A through 35-1C](https://asc.understandingaccounting.org/asc/815/10/#815-10-35-1A) , [815-10-50-3](https://asc.understandingaccounting.org/asc/815/10/#815-10-50-3), [815-20-25-3A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3A), [815-20-25-119](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-119), [815-20-25-134 through 25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-134) , [815-20-55-79A through 55-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79A) , [825-10-50-3](https://asc.understandingaccounting.org/asc/825/10/#825-10-50-3), and [825-10-50-8](https://asc.understandingaccounting.org/asc/825/10/#825-10-50-8) provide guidance for an entity electing the simplified hedge accounting approach. See paragraph [815-10-65-6](https://asc.understandingaccounting.org/asc/815/10/#815-10-65-6) for transition guidance on applying the simplified hedge accounting approach. ##### [815-20-25-134](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-134) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c4c0f8a80f726675ccbd414c0bf4bb0b4a5d541d4d6798d18aa03b62f9b30bfc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The conditions for the simplified hedge accounting approach determine which cash flow hedging relationships qualify for a simplified version of hedge accounting. If all of the conditions in paragraphs [815-20-25-135](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-135) and [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) are met, an entity may assume perfect effectiveness in a cash flow hedging relationship involving a variable-rate borrowing and a receive-variable, pay-fixed interest rate swap. ##### [815-20-25-135](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-135) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:33d0f0a22d08816230709c02ccf6333e47f142ee81c920fe548f94273c7836e1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Provided all of the conditions in paragraph [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) are met, the simplified hedge accounting approach may be applied by a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") except for a financial institution as described in paragraph [942-320-50-1](https://asc.understandingaccounting.org/asc/320/942/#320-942-50-1). An entity may elect the simplified hedge accounting approach for any receive-variable, pay-fixed interest rate swap, provided that all of the conditions for applying the simplified hedge accounting approach specified in paragraph [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) are met. Implementation guidance on the conditions set forth in paragraph [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) is provided in paragraphs [815-20-55-79A through 55-79B](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79A) . ##### [815-20-25-136](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-136) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:c23530a712f5cde86bbb25d1f4f86b25eaddbfce900931a0ae1c323dab77255e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In applying the simplified hedge accounting approach, the documentation required by paragraph [815-20-25-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) to qualify for hedge accounting must be completed by the date on which the first annual [financial statements are available to be issued](https://asc.understandingaccounting.org/glossary/f/#financial-statements-are-available-to-be-issued "Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders. The process involved in creating and distributing the financial statements will vary depending on an entity's management and corporate governance structure as well as statutory and regulatory requirements.") after hedge inception rather than concurrently at hedge inception. ##### [815-20-25-137](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-137) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:1c7d660b76a6f9752e4641ace5661d04a5cf0919764153af7ead816a8c3beb46 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An eligible entity under paragraph [815-20-25-135](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-135) must meet all of the following conditions to apply the simplified hedge accounting approach to a cash flow hedge of a variable-rate borrowing with a receive-variable, pay-fixed interest rate swap: 1. a Both the variable rate on the swap and the borrowing are based on the same index and reset period (for example, both the swap and borrowing are based on one-month London Interbank Offered Rate \[LIBOR\] or both the swap and borrowing are based on three-month LIBOR). 2. b The terms of the swap are typical (in other words, the swap is what is generally considered to be a “plain-vanilla” swap), and there is no floor or cap on the variable interest rate of the swap unless the borrowing has a comparable floor or cap. 3. c The repricing and settlement dates for the swap and the borrowing match or differ by no more than a few days. 4. d The swap's fair value at inception (that is, at the time the derivative was executed to hedge the interest rate risk of the borrowing) is at or near zero. 5. e The notional amount of the swap matches the principal amount of the borrowing being hedged. In complying with this condition, the amount of the borrowing being hedged may be less than the total principal amount of the borrowing. 6. f All interest payments occurring on the borrowing during the term of the swap (or the effective term of the swap underlying the forward starting swap) are designated as hedged whether in total or in proportion to the principal amount of the borrowing being hedged. ##### [815-20-25-138](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-138) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:151da9d5b88542da2c7e6d697bade6f2f0f1fed5dbd4592d6fd29513cd9fd77d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A cash flow hedge established through the use of a forward starting receive-variable, pay-fixed interest rate swap may be permitted in applying the simplified hedge accounting approach only if the occurrence of forecasted interest payments to be swapped is probable. When forecasted interest payments are no longer probable of occurring, a cash flow hedging relationship will no longer qualify for the simplified hedge accounting approach and the General Subsections of this Topic shall apply at the date of change and on a prospective basis. ##### [815-20-25-139](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:95663e67155b28e530ce4bc264b73177fb3c97ae764a2853e97549cf289789a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Concurrent with hedge inception, a [private company](https://asc.understandingaccounting.org/glossary/p/#private-company "An entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting.") that is not a financial institution as described in paragraph [942-320-50-1](https://asc.understandingaccounting.org/asc/320/942/#320-942-50-1) shall document the following: 1. a The hedging relationship in accordance with paragraph [815-20-25-3(b)(1)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) 2. b The hedging instrument in accordance with paragraph [815-20-25-3(b)(2)(i)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) 3. c The hedged item in accordance with paragraph [815-20-25-3(b)(2)(ii)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), including (if applicable) firm commitments or the analysis supporting a portfolio layer method designation in paragraph [815-20-25-3(c)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3), or forecasted transactions in paragraph [815-20-25-3(d)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) 4. d The nature of the risk being hedged in accordance with paragraph [815-20-25-3(b)(2)(iii)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). ##### [815-20-25-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-140) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:54c3878a8a7a01580c274da9de93acac437621cc105a679bd1d572a817138b8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A private company that is not a financial institution is not required to perform or document the following items concurrent with hedge inception but rather is required to perform or document them within the time periods discussed in paragraph [815-20-25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-142): 1. a The method of assessing hedge effectiveness at inception and on an ongoing basis in accordance with paragraph [815-20-25-3(b)(2)(iv) and (vi)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3) 2. b Initial hedge effectiveness assessments in accordance with paragraph [815-20-25-3(b)(2)(iv)(01) through (04)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). ##### [815-20-25-141](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-141) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:85012d38a997e236bb628b342dc1981f55fed083b812022ffc4adbfefaaed2b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1A beginning in paragraph [815-20-55-80A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-80A) illustrates hedge documentation when the critical terms of the hedging instrument and hedged forecasted transaction match. Although that Example illustrates the documentation of the method of assessing hedge effectiveness, private companies that are not financial institutions may complete hedge documentation requirements in accordance with paragraphs [815-20-25-139 through 25-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) . ##### [815-20-25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-142) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:ee304694ad4eb78fa0091b4657bdd2cf77720ddbbe08117983263987527a9aba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a private company that is not a financial institution, the performance and documentation of the items listed in paragraph [815-20-25-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-140), as well as required subsequent quarterly hedge effectiveness assessments, may be completed before the date on which the next interim (if applicable) or annual financial statements are available to be issued. Even though the completion of the initial and ongoing assessments of effectiveness may be deferred to the date on which [financial statements are available to be issued](https://asc.understandingaccounting.org/glossary/f/#financial-statements-are-available-to-be-issued "Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders. The process involved in creating and distributing the financial statements will vary depending on an entity's management and corporate governance structure as well as statutory and regulatory requirements.") the assessments shall be completed using information applicable as of hedge inception and each subsequent quarterly assessment date when completing this documentation on a deferred basis. Therefore, the assessment should be performed to determine whether the hedge was highly effective at achieving offsetting changes in fair values or cash flows at inception and in each subsequent quarterly assessment period up to the reporting date. #### Hedge Accounting Provisions Applicable to Certain Not-for-Profit Entities ##### [815-20-25-143](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-143) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:46.883Z to 2026-09-10T01:36:46.883Z Record version: sha256:2eb1ae94ace243e00b1d9806734290788f3dedf393be1e83a815f1dd36754af5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market) may apply the guidance on the timing of hedge documentation and hedge effectiveness assessments in paragraphs [815-20-25-139 through 25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) . Specifically, those entities shall document the items listed in paragraph [815-20-25-139](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-139) concurrent with hedge inception, but they may perform and document the items listed in paragraph [815-20-25-140](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-140)and perform the required subsequent quarterly hedge effectiveness assessments in accordance with paragraph [815-20-25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-142)within the time periods discussed in paragraph [815-20-25-142](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-142). Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:497d74ad802283c76df2b9357b67c12d15ab600c14f89b58e8eda0d273c13ac1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/815/20/#35-subsequent-measurement) SEC content: no ##### [815-20-35-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:4d069d7f2fb93b72ff0e62a138f1eb0ce8bc70e1666db4de9433619b86e133cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-10-35-2](https://asc.understandingaccounting.org/asc/815/10/#815-10-35-2) states that the accounting for subsequent changes in the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") (that is, gains or losses) of a [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument.") depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. Specifically, subsequent gains and losses on derivative instruments shall be accounted for as follows: 1. a No hedging designation. Paragraph [815-10-35-2](https://asc.understandingaccounting.org/asc/815/10/#815-10-35-2) requires that the gain or loss on a derivative instrument not designated as a hedging instrument be recognized currently in earnings. 2. b [Fair value hedge](https://asc.understandingaccounting.org/glossary/f/#fair-value-hedge "A hedge of the exposure to changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk."). The gain or loss on a derivative instrument designated and qualifying as a fair value hedging instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk shall be recognized currently in earnings in the same accounting period, as provided in paragraphs  [815-25-35-1 through 35-6](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-1) . If an entity excludes a portion of the hedging instrument from the assessment of hedge effectiveness in accordance with paragraph [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82), the initial value of the excluded component shall be recognized in earnings using a systematic and rational method over the life of the hedging instrument with any difference between the change in fair value of the excluded component and amounts recognized in earnings under that systematic and rational method recognized in other comprehensive income in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). An entity also may elect to recognize the excluded component of the gain or loss currently in earnings in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). The gain or loss on the hedging derivative or nonderivative instrument in a hedge of a foreign-currency-denominated [firm commitment](https://asc.understandingaccounting.org/glossary/f/#firm-commitment "An agreement with an unrelated party, binding on both parties and usually legally enforceable, with the following characteristics:The agreement specifies all significant terms, including the quantity to be exchanged, the fixed price, and the timing of the transaction. The fixed price may be expressed as a specified amount of an entity's functional currency or of a foreign currency. It may also be expressed as a specified interest rate or specified effective yield. The binding provisions of an agreement are regarded to include those legal rights and obligations codified in the laws to which such an agreement is subject. A price that varies with the market price of the item that is the subject of the firm commitment cannot qualify as a fixed price. For example, a price that is specified in terms of ounces of gold would not be a fixed price if the market price of the item to be purchased or sold under the firm commitment varied with the price of gold. The agreement includes a disincentive for nonperformance that is sufficiently large to make performance probable. In the legal jurisdiction that governs the agreement, the existence of statutory rights to pursue remedies for default equivalent to the damages suffered by the nondefaulting party, in and of itself, represents a sufficiently large disincentive for nonperformance to make performance probable for purposes of applying the definition of a firm commitment.") and the offsetting loss or gain on the hedged firm commitment shall be recognized currently in earnings in the same accounting period. The gain or loss on the hedging derivative instrument in a hedge of an available-for-sale debt security and the offsetting loss or gain on the hedged available-for-sale debt security shall be recognized currently in earnings in the same accounting period. 3. c [Cash flow hedge](https://asc.understandingaccounting.org/glossary/c/#cash-flow-hedge "A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk."). The gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument shall be reported as a component of other comprehensive income (outside earnings) and reclassified into earnings in the same period or periods during which the hedged [forecasted transaction](https://asc.understandingaccounting.org/glossary/f/#forecasted-transaction "A transaction that is expected to occur for which there is no firm commitment. Because no transaction or event has yet occurred and the transaction or event when it occurs will be at the prevailing market price, a forecasted transaction does not give an entity any present rights to future benefits or a present obligation for future sacrifices.") affects earnings, as provided in paragraphs [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3) and [815-30-35-38 through 35-41](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-38) . If an entity excludes a portion of the hedging instrument from the assessment of hedge effectiveness in accordance with paragraph [815-20-25-82](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-82), the initial value of the excluded component shall be recognized in earnings using a systematic and rational method over the life of the hedging instrument with any difference between the change in fair value of the excluded component and amounts recognized in earnings under that systematic and rational method recognized in other comprehensive income in accordance with paragraph [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A). An entity also may elect to recognize the excluded component of the gain or loss currently in earnings in accordance with paragraph [815-20-25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83B). The gain or loss on the hedging derivative instrument in a hedge of a forecasted foreign-currency-denominated [transaction](https://asc.understandingaccounting.org/glossary/t/#transaction "An external event involving transfer of something of value (future economic benefit) between two (or more) entities. (See FASB Concepts Statement No. 6, Elements of Financial Statements.)(P) December 16, 2024; (N) December 16, 2025105-10-65-9An external event involving transfer of something of value (future economic benefit) between two (or more) entities.") shall be reported as a component of other comprehensive income (outside earnings) and reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings, as provided in paragraph [815-20-25-65](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-65). 4. d Net investment hedge. The gain or loss on the hedging derivative or nonderivative hedging instrument in a hedge of a net investment in a foreign operation shall be reported in other comprehensive income (outside earnings) as part of the cumulative translation adjustment, as provided in paragraph [815-20-25-66](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-66). If an entity excludes a portion of the hedging instrument from the assessment of hedge effectiveness in accordance with paragraphs [815-35-35-5 through 35-5B](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5), the initial value of the excluded component shall be recognized in earnings using a systematic and rational method over the life of the hedging instrument. Any difference between the change in fair value of the excluded component and the amounts recognized in earnings under that systematic and rational method shall be recognized in the same manner as a translation adjustment (that is, reported in the cumulative translation adjustment section of other comprehensive income) in accordance with paragraph [815-35-35-5A](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5A). An entity also may elect to recognize the excluded component of the gain or loss currently in earnings in accordance with paragraph [815-35-35-5B](https://asc.understandingaccounting.org/asc/815/35/#815-35-35-5B). #### Hedge Effectiveness—After Designation ##### [815-20-35-2](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:5d30d4ccc832da0e2b3fe8dbd44c47396af5529d8f39647678f6e2fb73797ff2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a fair value hedge or cash flow hedge initially qualifies for hedge accounting, the entity would continue to assess whether the hedge meets the effectiveness test on either a quantitative basis (using either a dollar-offset test or a statistical method such as regression analysis) or a qualitative basis. See paragraphs [815-20-35-2A through 35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) for additional guidance on qualitative assessments of effectiveness. If the hedge fails the effectiveness test at any time (that is, if the entity does not expect the hedge to be highly effective at achieving offsetting changes in fair values or cash flows), the hedge ceases to qualify for hedge accounting. At least quarterly, the hedging entity shall determine whether the hedging relationship has been highly effective in having achieved offsetting changes in fair value or cash flows through the date of the periodic assessment. ##### [815-20-35-2A](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:c692b50aaa13b7ddf86874764091d17c69100643617f3e49db82918b184d733b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may qualitatively assess hedge effectiveness if both of the following criteria are met: 1. a An entity performs an initial quantitative test of hedge effectiveness on a prospective basis (that is, it is not assuming that the hedging relationship is perfectly effective at hedge inception as described in paragraph [815-20-25-3(b)(2)(iv)(01)(A) through (H)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3)), and the results of that quantitative test demonstrate highly effective offset. 2. b At hedge inception, an entity can reasonably support an expectation of high effectiveness on a qualitative basis in subsequent periods. See paragraphs [815-20-55-79G through 55-79N](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79G) for implementation guidance on factors to consider when determining whether qualitative assessments of effectiveness can be performed after hedge inception. ##### [815-20-35-2B](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:9e398887c79c63f52f53cd7258a4833e8dd3e6ed240f482a38525b2f32cb6d05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may elect to qualitatively assess hedge effectiveness in accordance with paragraph [815-20-35-2A](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2A) on a hedge-by-hedge basis. If an entity makes this qualitative assessment election, only the quantitative method specified in an entity's initial hedge documentation must comply with paragraph [815-20-25-81](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81). ##### [815-20-35-2C](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:8314560355cc995eb5088daae91166ca2d2e985d02531f7a19314ac49ec040a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When an entity performs qualitative assessments of hedge effectiveness, it shall verify and document whenever financial statements or earnings are reported and at least every three months that the facts and circumstances related to the hedging relationship have not changed such that it can assert qualitatively that the hedging relationship was and continues to be highly effective. While not all-inclusive, the following is a list of indicators that may, individually or in the aggregate, allow an entity to continue to assert qualitatively that the hedging relationship is highly effective: 1. a An assessment of the factors that enabled the entity to reasonably support an expectation of high effectiveness on a qualitative basis has not changed such that the entity can continue to assert qualitatively that the hedging relationship was and continues to be highly effective. This shall include an assessment of the guidance in paragraph [815-20-25-100](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-100) when applicable. 2. b There have been no adverse developments regarding the risk of counterparty default. ##### [815-20-35-2D](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:a5bbfc3cacb9d3975d2d4ae97f4a8887e1298046205d44d4a7e3aa8f5e762d6b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity elects to assess hedge effectiveness on a qualitative basis and then facts and circumstances change such that the entity no longer can assert qualitatively that the hedging relationship was and continues to be highly effective in achieving offsetting changes in fair values or cash flows, the entity shall assess effectiveness of that hedging relationship on a quantitative basis in subsequent periods. In addition, an entity may perform a quantitative assessment of hedge effectiveness in any reporting period to validate whether qualitative assessments of hedge effectiveness remain appropriate. In both cases, the entity shall apply the quantitative method that it identified in its initial hedge documentation in accordance with paragraph [815-20-25-3(b)(2)(iv)(03)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-3). ##### [815-20-35-2E](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2E) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:cbeb38432bb02cfbd0f166a6c49163bcb164770c439ce79ac3169949b8aaf5fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When an entity determines that facts and circumstances have changed and it no longer can assert qualitatively that the hedging relationship was and continues to be highly effective, the entity shall begin performing subsequent quantitative assessments of hedge effectiveness as of the period that the facts and circumstances changed. If there is no identifiable event that led to the change in the facts and circumstances of the hedging relationship, the entity may begin performing quantitative assessments of effectiveness in the current period. ##### [815-20-35-2F](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2F) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:d5bf6066042e58f83e90ed6837e18267733bbdf055764fa34f2c528aff09a5b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After performing a quantitative assessment of hedge effectiveness for one or more reporting periods as discussed in paragraphs [815-20-35-2D through 35-2E](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2D) , an entity may revert to qualitative assessments of hedge effectiveness if it can reasonably support an expectation of high effectiveness on a qualitative basis for subsequent periods. See paragraphs [815-20-55-79G through 55-79N](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79G) for implementation guidance on factors to consider when determining whether qualitative assessments of effectiveness can be performed after hedge inception. ##### [815-20-35-2G](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-2G) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:59a75f194d6de97c6626e9a74ca4b8fd504c9b086c3d8bf8bb243878b2425764 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Quantitative assessments can be based on regression or other statistical analysis of past changes in fair values or cash flows as well as on other relevant information. ##### [815-20-35-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:f4de0dc2c0243130d7f4187f18566c853c0a84183c8c129672cb275fe288877c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity elects at the inception of a hedging relationship to use the same regression analysis approach for both prospective considerations and retrospective evaluations of assessing effectiveness, then during the term of that hedging relationship both of the following conditions shall be met: 1. a Those regression analysis calculations shall generally incorporate the same number of data points. 2. b That entity must periodically update its regression analysis (or other statistical analysis). ##### [815-20-35-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:db1c2acbe3f9d066d5d704ea14a94f15c5437ba0d7985d2a1db89c297ef3ea5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Electing to use a regression or other statistical analysis approach instead of a dollar-offset approach to perform retrospective evaluations of assessing hedge effectiveness may affect whether an entity can apply hedge accounting for the current assessment period. ##### [815-20-35-5](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:f97b920ed015761f330d45556b94a5c0578b6d305724cefd8d7413fa36446742 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In periodically (that is, at least quarterly) assessing retrospectively the effectiveness of a fair value hedge (or a cash flow hedge) in having achieved offsetting changes in fair values (or cash flows) under a dollar-offset approach, an entity shall use either a period-by-period approach or a cumulative approach on individual fair value hedges (or cash flow hedges): 1. a Period-by-period approach. The period-by-period approach involves comparing the changes in the hedging instrument's fair values (or cash flows) that have occurred during the period being assessed to the changes in the hedged item's fair value (or hedged transaction's cash flows) attributable to the risk hedged that have occurred during the same period. If an entity elects to base its comparison of changes in fair value (or cash flows) on a period-by-period approach, the period cannot exceed three months. Fair value (or cash flow) patterns of the hedging instrument or the hedged item (or hedged transaction) in periods before the period being assessed are not relevant. 2. b Cumulative approach. The cumulative approach involves comparing the cumulative changes (to date from inception of the hedge) in the hedging instrument's fair values (or cash flows) to the cumulative changes in the hedged item's fair value (or hedged transaction's cash flows) attributable to the risk hedged. ##### [815-20-35-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:248038f52d38b8cbff407235778f620d7b997fe54abeb02a3c4562f6ca010907 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity elects at inception of a hedging relationship to base its comparison of changes in fair value (or cash flows) on a cumulative approach, then that entity must abide by the results of that methodology as long as that hedging relationship remains designated. Electing to utilize a period-by-period approach instead of a cumulative approach (or vice versa) to perform retrospective evaluations of assessing hedge effectiveness under the dollar-offset method may affect whether an entity can apply hedge accounting for the current assessment period. ##### [815-20-35-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:66d1e836d87069b638439600caf7ea8cf8e1cad1de7c2912dbdce7c98a3272b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-35-8](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:b6c72957784647a903b7fbdd8cb9999d2d21be98f0d2204491d9fd52b9f88180 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The remainder of this guidance is organized as follows: 1. a Assessing effectiveness based on whether the critical terms of the hedging instrument and hedged item match 2. b Possibility of default by the counterparty to hedging derivative 3. c Change in hedge effectiveness method when hedge effectiveness is assessed on a quantitative basis. ##### [815-20-35-9](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:7c7d77f3ad1000b85c2c00c15aa06d640b1896542bec8ee33ea533e6bb809caf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If, at inception, the critical terms of the hedging instrument and the hedged forecasted transaction are the same (see paragraphs [815-20-25-84 through 25-84A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-84)), the entity can conclude that changes in cash flows attributable to the risk being hedged are expected to be completely offset by the hedging derivative. Therefore, subsequent assessments can be performed by verifying and documenting whether the critical terms of the hedging instrument and the forecasted transaction have changed during the period in review. ##### [815-20-35-10](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:781f524f15725158c4eb377ef894df1397f5b1f7b5260ab44fa685f092e39294 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the assessment of hedge effectiveness in a cash flow hedge involves assessing the likelihood of the counterparty's compliance with the contractual terms of the derivative instrument designated as the hedging instrument, the entity must also assess whether there have been adverse developments regarding the risk of counterparty default, particularly if the entity planned to obtain its cash flows by liquidating the derivative instrument at its fair value. ##### [815-20-35-11](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:9fcb28d35efb9e4db70599f26c1b889e09168e0f628324174d65f5a77674faa1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there are no such changes in the critical terms or adverse developments regarding counterparty default, the entity may conclude that the hedging relationship is perfectly effective. In that case, the change in fair value of the derivative instrument can be viewed as a proxy for the present value of the change in cash flows attributable to the risk being hedged. ##### [815-20-35-12](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:12160e25518c2a348f415b234e800c7f056caf8ebf683e7512aa44322afd992e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, the entity must assess whether the hedging relationship is expected to continue to be highly effective using a quantitative assessment method (either a dollar-offset test or a statistical method such as regression analysis) if any of the following conditions exist: 1. a The critical terms of the hedging instrument or the hedged forecasted transaction have changed. 2. b There have been adverse developments regarding the risk of counterparty default. ##### [815-20-35-13](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:a099fd0774cc99be053ff4a6f1e1749f06987ad741fa5dd314c0bc5f41642ccc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-35-14](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:ddf22f08a193b7553331568c1db5c2187f45b47e9d3a453fc9391801182a3912 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For an entity to conclude on an ongoing basis that the hedging relationship is expected to be highly effective in achieving offsetting changes in cash flows, the entity shall not ignore whether it will collect the payments it would be owed under the contractual provisions of the derivative instrument. In complying with the requirements of paragraph [815-20-25-75(b)](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-75), the entity shall assess the possibility of whether the counterparty to the derivative instrument will default by failing to make any contractually required payments to the entity as scheduled in the derivative instrument. In making that assessment, the entity shall also consider the effect of any related collateralization or financial guarantees. The entity shall be aware of the counterparty's creditworthiness (and changes therein) in determining the fair value of the [derivative instrument](https://asc.understandingaccounting.org/glossary/d/#derivative-instrument "Paragraphs 815-10-15-83815-10-15-84815-10-15-85815-10-15-86815-10-15-87815-10-15-88815-10-15-89815-10-15-90815-10-15-91815-10-15-92815-10-15-93815-10-15-94815-10-15-95815-10-15-96815-10-15-97815-10-15-98815-10-15-99815-10-15-100815-10-15-101815-10-15-102815-10-15-103815-10-15-104815-10-15-105815-10-15-106815-10-15-107815-10-15-108815-10-15-109815-10-15-110815-10-15-111815-10-15-112815-10-15-113815-10-15-114815-10-15-115815-10-15-116815-10-15-117815-10-15-118815-10-15-119815-10-15-120815-10-15-121815-10-15-122815-10-15-123815-10-15-124815-10-15-125815-10-15-126815-10-15-127815-10-15-128815-10-15-129815-10-15-130815-10-15-131815-10-15-132815-10-15-133815-10-15-134815-10-15-135815-10-15-136815-10-15-137815-10-15-138815-10-15-139 define the term derivative instrument."). Although a change in the counterparty's creditworthiness would not necessarily indicate that the counterparty would default on its obligations, such a change shall warrant further evaluation. ##### [815-20-35-15](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:f56687cadc556f797226d322a9d586310b7b33bf43c11078d66b0839bee1b91b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the likelihood that the counterparty will not default ceases to be probable, an entity would be unable to conclude that the hedging relationship in a cash flow hedge is expected to be highly effective in achieving offsetting cash flows. ##### [815-20-35-16](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:3b4837a9d22943c0b64f7d7a835489f7219b14656ba1ff9ab5e79488c58d1f9b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast, a change in the creditworthiness of the derivative instrument's counterparty in a fair value hedge would have an immediate effect because that change in creditworthiness would affect the change in the derivative instrument's fair value, which would immediately affect both of the following: 1. a The assessment of whether the relationship qualifies for hedge accounting 2. b The amount of mismatch between the change in the fair value of the hedging instrument and the hedged item attributable to the hedged risk recognized in earnings under fair value hedge accounting. ##### [815-20-35-17](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:fae251c4b48f96f90a1fe45294fd06571466a1ad70ab1663543bb2303efa1494 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-12](https://asc.understandingaccounting.org/updates/asu-2017-12/). ##### [815-20-35-18](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:8892e99befeef9cc5cb96b9f8c1961dc8357a2a9723b6bbe6b6f0249f4b99f86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-20-25-103](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-103) states that, in applying the shortcut method, an entity shall consider the likelihood of the counterparty's compliance with the contractual terms of the hedging derivative that require the counterparty to make payments to the entity. That paragraph explains that implicit in the criteria for the shortcut method is the requirement that a basis exist for concluding on an ongoing basis that the hedging relationship is expected to be highly effective in achieving offsetting changes in fair values or cash flows. ##### [815-20-35-19](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:b91cf3856572e196535617224e4830780ad8abc1e6e74429d5d1f3881f281f61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the entity identifies an improved method of assessing hedge effectiveness in accordance with the guidance in paragraph [815-20-25-80](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-80) and wants to apply that method prospectively, it shall do both of the following: 1. a Discontinue the existing hedging relationship 2. b Designate the relationship anew using the improved method. ##### [815-20-35-20](https://asc.understandingaccounting.org/asc/815/20/#815-20-35-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:48.664Z to 2026-09-10T01:36:48.664Z Record version: sha256:9db3646f5eb6da54322cc4060198ae4d6d893649f87aa855c1e6320f3c5627b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The new method of assessing hedge effectiveness shall be applied prospectively and shall also be applied to similar hedges unless the use of a different method for similar hedges is justified. A change in the method of assessing hedge effectiveness by an entity shall not be considered a change in accounting principle as defined in Topic 250. Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:2c3f8568c0aa758f4018492367fd567d7af3145cb763477b5f2451b45efa42e6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/815/20/#45-other-presentation-matters) SEC content: no #### Income Statement Classification ##### [815-20-45-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:40d9c635475998ec2438a345e43c74126fb4a8f2dad2154f181e9e7227afe48c 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/). ##### [815-20-45-1A](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1A) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:f0b386e773c0c14e86e79cf3f09e26f0be515e2bf41d294c97ef4b85fd77351e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For qualifying fair value and cash flow hedges, an entity shall present both of the following in earnings in the same income statement line item that is used to present the earnings effect of the hedged item: 1. a The change in the fair value of the hedging instrument that is included in the assessment of hedge effectiveness 2. b Amounts excluded from the assessment of hedge effectiveness in accordance with paragraphs [815-20-25-83A through 25-83B](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A) . See paragraphs [815-20-55-79W through 55-79AD](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-79W) for related implementation guidance. ##### [815-20-45-1B](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1B) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:b0bf7be58328e6d4126022a5bed6b308831c43683abde76e7b5f85a311d15c71 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For cash flow hedges in which the hedged forecasted transaction is probable of not occurring in accordance with paragraph [815-30-40-5](https://asc.understandingaccounting.org/asc/815/30/#815-30-40-5), this Subtopic provides no guidance on the required income statement classification of amounts reclassified from accumulated other comprehensive income to earnings. ##### [815-20-45-1C](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1C) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:5f4a06d2f4e48e14f2613a4480d74dd61b92af038a1ca510a3bd705572e713b8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For qualifying net investment hedges, an entity shall present in the same income statement line item that is used to present the earnings effect of the hedged net investment those amounts reclassified from accumulated other comprehensive income to earnings. This Subtopic provides no guidance on the required income statement classification of amounts excluded from the assessment of effectiveness in net investment hedges. ##### [815-20-45-1CC](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1CC) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:8142f215847eed234d1277e1557fe2b25109b877a7b8e272b93d1312d89b724b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a breach of a portfolio layer method hedge has occurred in accordance with paragraph [815-25-40-8(b)](https://asc.understandingaccounting.org/asc/815/25/#815-25-40-8), an entity shall present in interest income the basis adjustment associated with the [hedged layer](https://asc.understandingaccounting.org/glossary/h/#hedged-layer "The hedged item designated in a portfolio layer method hedging relationship, representing a stated amount or stated amounts of a closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments that is not expected to be affected by prepayments, defaults, or other factors affecting the timing and amount of cash flows for the designated hedge period.") (or portion thereof) that is no longer outstanding. ##### [815-20-45-1D](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-1D) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:55f1a9f439177aaaf4e0e088a5cd36d4bfd320791628bfd64df07113520d1e13 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. While the Derivatives and Hedging Topic does not specify whether certain income statement line items are either permitted or appropriate, the other hedging-related Subtopics in this Topic do contain specific disclosure requirements for those items. See Section 815-10-50 and Subtopics 815-25, 815-30, and 815-35. #### Statement of Cash Flows ##### [815-20-45-2](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:e79f85bf00b28fd1aa99259dfbc072420880022399cb42c1daa5d597b99ae26d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For guidance on the classification of cash receipts and payments related to hedging activities, see paragraph [230-10-45-27](https://asc.understandingaccounting.org/asc/230/10/#230-10-45-27). #### Other Comprehensive Income ##### [815-20-45-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:0318d826e22808735f791af256a7d552baf0f62ea213871b0838728d06ce1f06 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall display as a separate classification within other comprehensive income the net gain or loss on [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.") designated and qualifying as fair value or cash flow hedging instruments that are reported in comprehensive income pursuant to paragraphs [815-20-25-65](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-65), [815-20-25-83A](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-83A), and [815-30-35-3](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-3). #### Balance Sheet Classification ##### [815-20-45-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-45-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:51.363Z to 2026-09-10T01:36:51.363Z Record version: sha256:76f0bdca49758327aabb6164f012653eec74be993e7f0ab0071d755b40e5ce70 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For an existing portfolio layer method hedge, if the assets included in the same closed portfolio are presented in different line items in the statement of financial position, an entity shall allocate the portfolio layer method basis adjustment to the assets’ associated line items in the statement of financial position using a systematic and rational method. Source downloaded (UTC): 2026-09-10T01:36:53.139Z to 2026-09-10T01:36:53.139Z Record version: sha256:3c76b746bf7af1916e1032223fa4424f1690b901f0fbf010dd33a3023ca8015f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/815/20/#50-disclosure) SEC content: no ##### [815-20-50-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:53.139Z to 2026-09-10T01:36:53.139Z Record version: sha256:ba727ec8610c61e4fccc43751c4d4fee029ac41c71c671d2fd0d1188ea0625cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 815-10-50 for overall guidance on disclosures about derivative instruments used in hedging activities. For guidance on disclosures about instruments used to mitigate the income statement effect of changes in [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of servicing assets and servicing liabilities, see paragraph [860-50-50-2(b)](https://asc.understandingaccounting.org/asc/860/50/#860-50-50-2). For guidance on encouraged disclosure of quantitative information about instruments used to manage the risks inherent in servicing assets and servicing liabilities, see paragraph [860-50-50-2](https://asc.understandingaccounting.org/asc/860/50/#860-50-50-2). 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 Source downloaded (UTC): 2026-09-10T01:36:59.448Z to 2026-09-10T01:36:59.448Z Record version: sha256:a6082909f38829e9aa64247441c909e30ab77b010f2a5351abcf2077700fcfce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-20-65: 65 Transition and Open Effective Date Information [Read section](https://asc.understandingaccounting.org/asc/815/20/#65-transition-and-open-effective-date-information) SEC content: no ##### [815-20-65-1](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:59.448Z to 2026-09-10T01:36:59.448Z Record version: sha256:6a7cf4c45fc29566062cf2488327d104860c0be28892b79845e707f27471546b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 07/02/2014 after the end of the transition period stated in Accounting Standards Update No. 2013-10, _Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes_. ##### [815-20-65-2](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:59.448Z to 2026-09-10T01:36:59.448Z Record version: sha256:ebb8762da1bc67dc953a1cda192d01369662e00e7a52095900d975af89c6a84d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 07/17/2019 after the end of the transition period stated in Accounting Standards Update No. 2016-05, _Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships_. ##### [815-20-65-3](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:59.448Z to 2026-09-10T01:36:59.448Z Record version: sha256:2a74dbc43389fdddf2d9e93bb99483b45b703f9576827476920f1aeae5246cf3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 07/10/2023 after the end of the transition period stated in Accounting Standards Updates No. 2017-12, _Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities_. ##### [815-20-65-4](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:59.448Z to 2026-09-10T01:36:59.448Z Record version: sha256:bcba49483cc9be464290d97861c4ab2ffd0146cc0a9cc5ee15cdd8fdd058a4c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 12/14/2022 after the end of the transition period stated in Accounting Standards Update No. 2018-16, _Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes_. ##### [815-20-65-5](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:59.448Z to 2026-09-10T01:36:59.448Z Record version: sha256:0c73b992b746bc4d3d375f81ee0732cef55f81811af4a34861ab2c30de599880 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 12/14/2022 after the end of the transition period stated in Accounting Standards Update No. 2019-04, _Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments_. ##### [815-20-65-6](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:59.448Z to 2026-09-10T01:36:59.448Z Record version: sha256:09a51b3771703a00a80f799af581c708857a9c1bb3a24855eaa2c0cabecc4143 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph superseded on 06/30/2025 after the end of the transition period stated in Accounting Standards Update No. 2022-01, _Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method_. #### Transition Related to Accounting Standards Update No. 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements ##### [815-20-65-7](https://asc.understandingaccounting.org/asc/815/20/#815-20-65-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:36:59.448Z to 2026-09-10T01:36:59.448Z Record version: sha256:49aa2e8cb671204cb944ee3ba734e8c0fe767bcbe8e6eeadeda4f07d1cb1ba1f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Accounting Standards Update 2025-09](https://asc.understandingaccounting.org/updates/asu-2025-08/) 2029-06-13 2026-12-16 2026-12-16 2026-12-16 2026-12-16 2026-12-16 2026-12-16 2026-12-16 2026-12-16 2027-12-16 2027-12-16 2027-12-16 2027-12-16 2027-12-16 2027-12-16 The following represents the transition and effective date information related to Accounting Standards Update No. 2025-09, _Derivatives and Hedging (Topic 815): Hedge Accounting Improvements:_ **Effective date and early adoption** 1. a For public business entities, the pending content that links to this paragraph shall be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. 2. b For entities other than public business entities, the pending content that links to this paragraph shall be effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. 3. c Early adoption of the pending content that links to this paragraph is permitted for all entities on any date on or after November 25, 2025. **Transition method** 1. d An entity shall apply the pending content that links to this paragraph on a prospective basis, including the guidance described in (e) for existing hedging relationships (that is, the hedging instrument has not expired, been sold, terminated, or exercised, or the entity has not removed the designation of the hedging relationship) beginning on or after the date of adoption. 2. e For cash flow hedges existing as of the date of adoption, without dedesignating the hedging relationship, an entity may: 1. 1 For hedges of variability in cash flows attributable to a group of individual forecasted transactions, modify its method for assessing similar risk exposure to a method described in paragraph [815-20-55-23A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A). If an entity is applying one of the methods described in paragraph [815-20-55-23A](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A), it may elect to change to the other method. If an entity modifies its method of assessing similar risk exposure to the method described in paragraph [815-20-55-23A(a)](https://asc.understandingaccounting.org/asc/815/20/#815-20-55-23A), the entity also may change its method of assessing hedge effectiveness if the revised method leverages the similar risk assessment in determining that the hedging relationship is highly effective. An entity is not required to apply the guidance in paragraph [815-20-25-81](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-81) when comparing hedging relationships executed before and after the date of adoption in relation to the guidance in (e)(1). 2. 2 For hedges of variability in cash flows attributable to changes in the overall price or the contractually specified component of the price in a forecasted purchase or sale of a nonfinancial asset, modify the fhedging relationship to designate the hedged risk as variability in cash flows attributable to changes in a component (or subcomponent) of the forecasted purchase price or sales price of a nonfinancial asset in accordance with paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C). The entity is not required to amend its hedge documentation for hedges of a contractually specified component to reflect amendments in accordance with paragraph [815-20-25-22C](https://asc.understandingaccounting.org/asc/815/20/#815-20-25-22C) if the hedged risk is unchanged. 3. 3 For hedges of variability in cash flows attributable to a group of individual forecasted transactions: 1. i Modify the hedging relationship to add an additional hedged risk or risks to an existing portfolio if the hedging relationship continues to meet all other requirements to apply cash flow hedge accounting. 2. ii Migrate some or all of the individual forecasted transactions from one existing pool or pools to a new pool or pools, an existing pool or pools, or a combination of new and existing pools. 3. iii Reassign and reorder existing hedging instruments to a new or existing pool. 4. 4 For hedges of forecasted interest payments on an existing choose-your-rate debt instrument: 1. i Amend the hedging relationship to include interest payments on replacement debt. 2. ii Specify the quantitative method that an entity will use in the event that it must assess hedge effectiveness on a quantitative basis in subsequent periods (for entities assessing hedge effectiveness on a qualitative basis). 5. 5 For hedges of forecasted interest payments that may include interest payments on an existing choose-your-rate debt instrument designated as part of a group of forecasted transactions under the first-payments-received technique: 1. i Amend the hedging relationship to include only interest payments on the individual existing choose-your-rate debt instrument and replacement debt. 2. ii Specify the quantitative method that an entity will use in the event that it must assess hedge effectiveness on a quantitative basis in subsequent periods (for entities assessing hedge effectiveness on a qualitative basis). 3. f For hedges that were discontinued before the date of adoption for which amounts are still reported in accumulated other comprehensive income at the date of adoption, an entity may migrate the individual forecasted transactions to align with the pools of existing hedges considering the migration described in (e)(3)(ii). 4. g Gains or losses on hedging instruments that are reported in accumulated other comprehensive income at the date of adoption shall be reassigned using a systematic and rational manner to align with the pool or pools after the migrations described in (e)(3)(ii) and (f) and reassignments and reorderings described in (e)(3)(iii). Amounts from accumulated other comprehensive income shall be reclassified 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) . 5. h If adoption of the pending content that links to this paragraph in (e) changes the designated hedged risk, an entity shall create the terms of the instrument used to estimate the change in value of the hedged risk (under the originally designated method, for example, the hypothetical derivative method, or another acceptable method in Subtopic 815-30) in the assessment of hedge effectiveness and the similar risk assessment, if applicable, on the basis of market data as of the inception of the hedging relationship. Furthermore, an entity shall amend hedge documentation upon adoption, including documentation of critical terms, the hedged forecasted transactions, hedge effectiveness assessments, and similar risk assessments, as needed to apply the pending content in (e) through (g) for all existing and discontinued hedging relationships. **Transition disclosures** 1. i An entity shall disclose the nature of and reason for the change in accounting principle, as well as the method of applying the change, in both the interim reporting period and the annual reporting period that the entity adopts the pending content that links to this paragraph.