# ASC 815-45: Derivatives and Hedging — Weather Derivatives Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/815/45/) 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): 2026-09-10T01:39:26.652Z to 2026-09-10T01:39:52.581Z Record version: sha256:67de1601a0addae39629aa964a7daf4352e0408784938e5d72672197214a10fa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45: Derivatives and Hedging — Weather Derivatives ### Machine-generated study aids ```json { "summary": "ASC 815-45 governs the accounting for weather derivatives that are not exchange-traded (exchange-traded weather derivatives fall under ASC 815-10), and excludes insurance contracts that pay only upon an insurable event causing a liability or adverse change in value of a specific asset or liability. If entered into for nontrading purposes, forward-based weather derivatives are accounted for under the intrinsic value method, purchased options are recorded as a premium asset amortized to expense plus intrinsic value measurement, and written options are recorded as a premium liability remeasured to fair value through earnings. All weather derivatives entered into for trading or speculative activities are recognized as assets or liabilities at fair value with subsequent changes in fair value in earnings.", "key_points": [ "Scope: applies to all entities and all non-exchange-traded weather derivatives, but not to insurance contracts that compensate the holder only upon an insurable event causing a liability or adverse change in the value of a specific asset or liability at risk (815-45-15-1 through 15-2).", "Nontrading forward-based (e.g., degree-day swap) weather derivatives are accounted for under the intrinsic value method (815-45-25-1; 815-45-35-1).", "The intrinsic value method allocates the cumulative strike amount to individual periods at inception using external statistical data (e.g., National Weather Service), and that initial allocation is never adjusted for actual results; interim intrinsic value equals cumulative actual-versus-allocated differences times the contract price (815-45-30-3; 815-45-35-2).", "A purchased non-exchange-traded option-based weather derivative is recognized as an asset measured initially at the premium paid, then amortized to expense in a rational and systematic manner while the intrinsic value method is applied at each interim balance sheet date (815-45-25-2; 815-45-30-1; 815-45-35-4).", "A written non-exchange-traded option-based weather derivative is recognized as a liability initially measured at the premium received; the premium is not amortized and all subsequent fair value changes go to earnings (815-45-25-3; 815-45-30-2; 815-45-35-5).", "Off-market contracts may contain an embedded premium or discount (e.g., a cumulative strike inconsistent with historical weather data); it must be quantified, removed from the benchmark strike, and accounted for separately (815-45-30-3A).", "Trading/speculative classification turns on the entity's intent and an evaluation of its activities, assessed via Category A fundamental indicators (815-45-55-5) and Category B management-and-control indicators (815-45-55-6); such contracts are measured initially and subsequently at fair value with changes in earnings (815-45-25-5 through 25-6; 815-45-30-4; 815-45-35-7)." ], "categories": [ "Derivatives and hedging", "Subsequent measurement", "Initial measurement", "Fair value" ], "audience_level": "advanced", "student_note": "This is the rare corner of ASC 815 where a derivative is NOT measured at fair value: nontrading, non-exchange-traded weather derivatives use the intrinsic value method instead. The common mistake is assuming all derivatives get fair value treatment, or forgetting the asymmetry—purchased option premiums are amortized while written option premiums are not and are simply remeasured to fair value through earnings.", "related_topics": [ "815-10", "820", "825-10", "944" ], "key_concepts": [ "weather derivative", "intrinsic value method", "cumulative strike allocation", "heating degree day", "trading or speculative activities", "option premium amortization", "non-exchange-traded contract", "embedded premium or discount" ] } ``` Source downloaded (UTC): 2026-09-10T01:39:26.652Z to 2026-09-10T01:39:26.652Z Record version: sha256:cec2718cbfe7fd67fd825ccdea2ce6cbd2f9e2bdfaf910464c216b23521800cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/815/45/#00-status) SEC content: no ##### [815-45-00-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:26.652Z to 2026-09-10T01:39:26.652Z Record version: sha256:f83642b52f2c6bf8f886f547bdea0651923194a09703c0ea9206b3638773f569 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
815-45-55-6AmendedAccounting Standards Update No. 2012-0410/01/2012
Source downloaded (UTC): 2026-09-10T01:39:29.542Z to 2026-09-10T01:39:29.542Z Record version: sha256:4a9738446709538951a2d8d384bbb155297fd757499500476ff43ea65809edd7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/815/45/#05-overview-and-background) SEC content: no ##### [815-45-05-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:29.542Z to 2026-09-10T01:39:29.542Z Record version: sha256:c94046788c06701ee141784f206a6eca9346831555968b1f4cb7428933803a02 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic addresses the financial accounting and reporting for [weather derivatives](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.") within its scope. Source downloaded (UTC): 2026-09-10T01:39:32.624Z to 2026-09-10T01:39:32.624Z Record version: sha256:9a5758e811a56f2710fd483e06f1f38349a1bb069b6194c2767164afc5de2831 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/815/45/#15-scope-and-scope-exceptions) SEC content: no #### Entities ##### [815-45-15-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:32.624Z to 2026-09-10T01:39:32.624Z Record version: sha256:5ed79e49aab4ad0fb35fad6eb037739d170d4f74c7658de8b72b98e7e06b38a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic applies to all entities. #### Instruments ##### [815-45-15-2](https://asc.understandingaccounting.org/asc/815/45/#815-45-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:32.624Z to 2026-09-10T01:39:32.624Z Record version: sha256:d6a2d972272a8939f28d65f473e41b1997062d182f2b653cd31c8d102c7bb550 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Except as noted in this paragraph, the guidance in this Subtopic applies to all [weather derivatives](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.") that are not exchange-traded (and, therefore, not subject to the requirements of Subtopic 815-10). The guidance in this Subtopic does not apply to contracts written by insurance entities that entitle the holder to be compensated only if, as a result of an insurable event, the holder incurs a liability or there is an adverse change in the value of a specific asset or liability for which the holder is at risk. Source downloaded (UTC): 2026-09-10T01:39:38.579Z to 2026-09-10T01:39:38.579Z Record version: sha256:23c985f577e457beb9941dd3909a20addad69c8ab7b4fbff098d67a605d2588b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/815/45/#25-recognition) SEC content: no #### Nontrading Activities ##### [815-45-25-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:38.579Z to 2026-09-10T01:39:38.579Z Record version: sha256:b261a1b18e990d95609efbfacb8f5b5c198bb7f32f41a2d59774eaebe09e9930 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that enters into a non-exchange-traded forward-based [weather derivative](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.") in connection with nontrading activities shall account for the contract by applying an intrinsic value method (as discussed in Section 815-45-30). See Example 1 (paragraph [815-45-55-7](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-7)) for an illustration of the accounting for an example degree-day forward contract. ##### [815-45-25-2](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:38.579Z to 2026-09-10T01:39:38.579Z Record version: sha256:1e9b50d18f2abf4eeb21554912be479ba2ae3d8e0d4bfa698e6dd025e293fd25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that purchases a non-exchange-traded option-based weather derivative in connection with nontrading activities shall recognize an asset. ##### [815-45-25-3](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:38.579Z to 2026-09-10T01:39:38.579Z Record version: sha256:60d3a402a45f5d58cdf48d4c7c708b938e7b90e3cdc63fa701294b86df75e792 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that sells or writes a non-exchange-traded option-based weather derivative shall recognize a liability. ##### [815-45-25-4](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:38.579Z to 2026-09-10T01:39:38.579Z Record version: sha256:d48a58aeaef0a0414d1d5d47611ff278d2ab919e20e05697d90023ab28ccaf8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). #### Trading Activities ##### [815-45-25-5](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:38.579Z to 2026-09-10T01:39:38.579Z Record version: sha256:4b228ce4cb4b1df840776b9cfc4e0d73a3fd124c6384101d7338a846c78add7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All weather derivative contracts entered into under [trading](https://asc.understandingaccounting.org/glossary/t/#trading "An activity involving securities sold in the near term and held for only a short period of time. The term trading contemplates a holding period generally measured in hours and days rather than months or years. See paragraph 948-310-40-1 for clarification of the term trading for a mortgage banking entity.") or speculative activities shall be accounted for as assets or liabilities. ##### [815-45-25-6](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:38.579Z to 2026-09-10T01:39:38.579Z Record version: sha256:3835aff2527e43cb7b3d6b5a502151454dea54ad50f2ef8cdc97eab705b3aec7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of this Subtopic, an entity shall be considered to be involved in trading or speculative activities if it enters into weather derivative contracts with the objective of generating profits on or from exposures to shifts or changes in climatic or geological conditions. See paragraphs [815-45-55-1 through 55-6](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-1) for specific guidance. Source downloaded (UTC): 2026-09-10T01:39:41.115Z to 2026-09-10T01:39:41.115Z Record version: sha256:1db2d5a21603cd9c3d7eea0acc2a4b3e28d27a69f724b639837b02157883109e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/815/45/#30-initial-measurement) SEC content: no #### Nontrading Activities ##### [815-45-30-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:41.115Z to 2026-09-10T01:39:41.115Z Record version: sha256:69084d72080d9dcf3c8585f2e5b25e52ff230f989101fbc31e4b901e62f0b877 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A purchased non-exchange-traded option-based [weather derivative](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.") recognized as an asset under paragraph [815-45-25-2](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-2) shall be measured initially at the amount of the premium paid. ##### [815-45-30-2](https://asc.understandingaccounting.org/asc/815/45/#815-45-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:41.115Z to 2026-09-10T01:39:41.115Z Record version: sha256:27ae3bd2a01cf9fb35bd334d1ce83a50760e041ba69a5fcec75d144c1c969f55 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A sold or written non-exchange-traded option-based weather derivative recognized as a liability under paragraph [815-45-25-3](https://asc.understandingaccounting.org/asc/815/45/#815-45-25-3) shall be measured initially at the amount of the premium received. ##### [815-45-30-3](https://asc.understandingaccounting.org/asc/815/45/#815-45-30-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:41.115Z to 2026-09-10T01:39:41.115Z Record version: sha256:9f95d3740ba404f61ee02aa3ea20a3594414f986d67a3409a9c0dc4e3ab71cca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The intrinsic value method requires that the reporting entity allocate the cumulative strike amount to individual periods within the contract term. That allocation shall reflect reasonable expectations at the beginning of the contract term of normal or expected experience under the contract. That allocation shall be based on data from external statistical sources, such as the National Weather Service. See Example 1 (paragraph [815-45-55-7](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-7)) for an illustration of the accounting for example contracts. ##### [815-45-30-3A](https://asc.understandingaccounting.org/asc/815/45/#815-45-30-3A) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:41.115Z to 2026-09-10T01:39:41.115Z Record version: sha256:4ab8b24ca43dee6a97ea00b83b9bf992dfe73daae751843887d33c344eee5369 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A purchased or written weather derivative may contain an embedded premium or discount if the contract terms are not consistent with current market terms (for example, the cumulative strike amount referenced in the contract is not consistent with historical weather data, adjusted for expected experience). In those circumstances, the premium or discount shall be quantified, removed from the calculated benchmark strike, and accounted for as discussed in the preceding paragraphs. #### Trading Activities ##### [815-45-30-4](https://asc.understandingaccounting.org/asc/815/45/#815-45-30-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:41.115Z to 2026-09-10T01:39:41.115Z Record version: sha256:313f7e12748c67d6ec154cc8dfadf9530c3a7ddacc979c8d9d851611571c386d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All weather derivative contracts entered into under [trading](https://asc.understandingaccounting.org/glossary/t/#trading "An activity involving securities sold in the near term and held for only a short period of time. The term trading contemplates a holding period generally measured in hours and days rather than months or years. See paragraph 948-310-40-1 for clarification of the term trading for a mortgage banking entity.") or speculative activities shall be measured initially at their [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."). Source downloaded (UTC): 2026-09-10T01:39:43.163Z to 2026-09-10T01:39:43.163Z Record version: sha256:22abb146f3a3b52e570635fcdf05aea0aa79873192a9db93d480591e3f33a052 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/815/45/#35-subsequent-measurement) SEC content: no #### Nontrading Activities ##### [815-45-35-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:43.163Z to 2026-09-10T01:39:43.163Z Record version: sha256:164b5b985c36f1041df7cae65102e326f85a6631cca127a320b0f6d60b532a42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that enters into a non-exchange-traded forward-based [weather derivative](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.") in connection with nontrading activities shall account for the contract by applying the intrinsic value method. ##### [815-45-35-2](https://asc.understandingaccounting.org/asc/815/45/#815-45-35-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:43.163Z to 2026-09-10T01:39:43.163Z Record version: sha256:6180e60dc1f9424f93e96c3979aa9be1153a40750c92c05f80b607111d19c7d3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The intrinsic value method computes an amount based on the difference between the expected results from an upfront allocation of the cumulative strike and the actual results during a period, multiplied by the contract price (for example, dollars per heating degree day). The intrinsic value (or intrinsic value measure) of the contract at interim dates shall be calculated based on cumulative differences between actual experience and the allocation through that date. The initial allocation of the cumulative strike amount shall not be adjusted over the term of the contract to reflect actual results. ##### [815-45-35-3](https://asc.understandingaccounting.org/asc/815/45/#815-45-35-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:43.163Z to 2026-09-10T01:39:43.163Z Record version: sha256:cbb4f29826512b0c9faef93301fc92b63e98355e233dd54050c6f67445068bdf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 1 (paragraph [815-45-55-7](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-7)) for an illustration of the accounting for an example degree-day forward contract. ##### [815-45-35-4](https://asc.understandingaccounting.org/asc/815/45/#815-45-35-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:43.163Z to 2026-09-10T01:39:43.163Z Record version: sha256:91e3b9af6159d93472b32149ac65a896850ba1e86518c7464f53a7983cabea40 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that purchases a non-exchange-traded option-based weather derivative in connection with nontrading activities shall amortize to expense the premium paid (or due) and apply the intrinsic value method described in paragraph [815-45-35-2](https://asc.understandingaccounting.org/asc/815/45/#815-45-35-2) to measure the contract at each interim balance sheet date. The premium asset shall be amortized in a rational and systematic manner. ##### [815-45-35-5](https://asc.understandingaccounting.org/asc/815/45/#815-45-35-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:43.163Z to 2026-09-10T01:39:43.163Z Record version: sha256:fb4e538271d40238c420d76fc3d27883eb51b7bd3ecdcf115ddf7ee956746412 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All entities that sell or write a non-exchange-traded option-based weather derivative shall recognize any subsequent 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.") currently in earnings—the premium shall not be amortized. ##### [815-45-35-6](https://asc.understandingaccounting.org/asc/815/45/#815-45-35-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:43.163Z to 2026-09-10T01:39:43.163Z Record version: sha256:3ce6ca663d80767b9ce93972a6ae74afd179d42c6b88f0a12af9463214097465 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 1 (paragraph [815-45-55-7](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-7)) for an illustration of the accounting for an example degree-day option contract. #### Trading Activities ##### [815-45-35-7](https://asc.understandingaccounting.org/asc/815/45/#815-45-35-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:43.163Z to 2026-09-10T01:39:43.163Z Record version: sha256:d0bb7937fbcd7f2c97392b1731a1495881156e618f08d7e7a7d20708b24ec0ee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All subsequent changes in fair value of weather derivative contracts entered into under [trading](https://asc.understandingaccounting.org/glossary/t/#trading "An activity involving securities sold in the near term and held for only a short period of time. The term trading contemplates a holding period generally measured in hours and days rather than months or years. See paragraph 948-310-40-1 for clarification of the term trading for a mortgage banking entity.") or speculative activities shall be reported currently in earnings. Source downloaded (UTC): 2026-09-10T01:39:45.884Z to 2026-09-10T01:39:45.884Z Record version: sha256:09eee49a336463caacb696d24a71d9d2ffe3950b8f1d6f8f5754c754ae5091ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/815/45/#50-disclosure) SEC content: no ##### [815-45-50-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:45.884Z to 2026-09-10T01:39:45.884Z Record version: sha256:26716e9345d067f5185a761189e04d9229de304487fe91e72454b7e2072dcd81 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Weather derivative](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.") contracts within the scope of this Subtopic are financial instruments and, therefore, entities that enter into such contracts shall follow the disclosure requirements under Subtopic 825-10. Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:e0c5d44f23715635f54bbc5f39523cdb4d20544d627cc2ffa07d7fd4e272f2ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/815/45/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [815-45-55-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:3a397d1e61e4b7b8a194144cde8926a772cc3699284190588dc8631537af351e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Determining whether or when an entity is involved in [trading](https://asc.understandingaccounting.org/glossary/t/#trading "An activity involving securities sold in the near term and held for only a short period of time. The term trading contemplates a holding period generally measured in hours and days rather than months or years. See paragraph 948-310-40-1 for clarification of the term trading for a mortgage banking entity.") or speculative activities involving [weather derivative](https://asc.understandingaccounting.org/glossary/w/#weather-derivative "A forward-based or option-based contract for which settlement is based on a climatic or geological variable. One example of such a variable is the occurrence or nonoccurrence of a specified amount of snow at a specified location within a specified period of time.") contracts is a matter of judgment that depends on the relevant facts and circumstances. The framework in which such facts and circumstances are assessed shall be based on an evaluation of the various activities of an entity rather than solely on the terms of the contracts. Inherent in that framework is an evaluation of the entity's intent for entering into a weather derivative contract. ##### [815-45-55-2](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:f94aa34b979012970f38aabb96c680267137bd8017762508e683c4eb196d0ed9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. It is easier to evaluate the trading activities of an entity if such activities are segregated either organizationally or by legal entity. If an entity conducts both trading activities and nontrading activities and those activities are not segregated either organizationally or by legal entity, it is essential that the entity analyze contracts at inception according to the factors in paragraphs [815-45-55-5 through 55-6](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-5) and identify those contracts as either trading or nontrading. However, if an operation's trading activities are not segregated in either of those ways and an evaluation of the indicators identified in paragraphs [815-45-55-4 through 55-6](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-4) would conclude that a portion of the operation's activities are trading, then only that portion of the operation's activities that is considered trading shall be accounted for at [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."). ##### [815-45-55-3](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:23bfed428991b54bfb407d30f09b52d16c33b25f2fd52ab6f257a3103930f903 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As used in this Subtopic, operation refers to any identifiable activity of an entity (for example, a subsidiary, a division, or a unit) that enters into the types of weather derivative contracts that are within the scope of this Subtopic. ##### [815-45-55-4](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:0ae4a52913cdcd11bd3fa3ed387cfc1292d65c6fc4cbeec69e1f1530b2fea5ad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of identifying trading activities, the following groups of indicators shall be considered for each identifiable operation (activity) of an entity that enters into weather derivative contracts that are within the scope of this Subtopic. Category A lists the fundamental indicators to be considered for purposes of determining whether the operation of an entity that enters into weather derivative contracts is involved in trading activities. Accordingly, the presence of indicators from Category A may be a strong indication that the operation's activities are trading. The presence of indicators from only Category B may indicate that such activities are trading. The absence of any or all of the indicators in either category, by itself, shall not preclude the operation's activities from being considered trading. Nevertheless, all available evidence shall be considered to determine whether, based on the weight of that evidence, an operation is involved in trading activities. ##### [815-45-55-5](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:4c662013210fbf1efba689a08c95fb180ed222414dd9de0ce09b0b4bc5483a63 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following are fundamental indicators in Category A: 1. a The operation's primary business is not inherently exposed to the specific weather-related risk stated as a variable (for example, temperature, wind velocity, and humidity) in the weather derivative contracts it holds. 2. b The volume of weather derivative contracts exceeds a reasonable or supportable level of weather-related risk inherent in the operation's primary business. 3. c The change in value of the weather derivative contract (for example, based on a temperature variable) is expected to move in a direction that does not mitigate or offset the risk of the underlying exposure (for example, fuel consumption). 4. d The operation develops and uses its own proprietary models to price the weather derivative contracts it offers or trades. ##### [815-45-55-6](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:8e6fd0a4780c6d483d333b08a5dd433c55e3e074af9607ae31add3fc65a2d1d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All of the following are secondary indicators (management and controls) in Category B: 1. a Compensation and/or performance measures are tied to the short-term results generated from weather derivative contracts (that is, the operation is measured based on trading profits or changes in the fair values of its positions as opposed to profitable management of income-producing assets). 2. b The operation communicates internally in terms of trading strategy (that is, management reports identify contractual positions, fair values, risk exposure, and so forth). 3. c The word trading is in the name of the operation for internal or external purposes. 4. d Employees of the operation are referred to as traders or have prior experience in derivative trading or risk-management activities. 5. e Assessment of net market positions of the operation is done on a regular basis. 6. f Infrastructure of the operation is similar to that of a trading operation of a bank or investment bank—front office, middle office, and back office (that is, there is a segregation of back-office processing and front-office trading functions). 7. g An infrastructure exists that enables the operation to capture price and other risks on a real-time basis. 8. h The activities are managed on a portfolio or book basis. #### Illustrations ##### [815-45-55-7](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:c581deab527db4ae13674400749fb9454e9413b0c3cb5eac90f9c88d4648e4b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate two types of degree-day contracts: 1. a A degree-day swap (Case A) 2. b A degree-day option (Case B). ##### [815-45-55-8](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:f798f85a517507035bb8c729d46a4eeae11916a98eca1e9c2caf753be04e4799 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Cases A and B share all of the following assumptions: 1. a Entity A is a construction materials entity that has its sales decrease during cold winters or a chemical manufacturer that has its natural gas consumption costs increase during cold winters. Entity B is a natural gas distribution entity that experiences lower revenues during warm winters. 2. b Neither Entity A nor Entity B is a dealer in weather derivatives (that is, the operations of both entities that entered into this contract are nontrading). 3. c At inception of each contract, the reporting entity constructs the allocation (as presented in the table in paragraph [815-45-55-11](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-11)) of the strike level of heating degree days across the contract period based on historical heating degree day averages (the weather-related index) for the respective months. That allocation is not part of the contract terms. (Heating degree days is the winter measure of average daily temperature below 65 degrees Fahrenheit.) 4. d Actual heating degree days (as presented in the table in paragraph [815-45-55-11](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-11)) reflect the measure of actual average daily temperatures below 65 degrees Fahrenheit based on weather service readings. If the average of the daily high and the daily low temperatures is 34 degrees Fahrenheit, then there are 31 heating degree days for that day. To determine the number of heating degree days for a period, add heating degree days for each day of the period. ##### [815-45-55-9](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:a87a7924080e900284bf480f2d13cd3a87561dbae442a4f40d5e213fc2d528b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A and Entity B enter into a degree-day swap (that is, a contract with two-directional risk).The contract requires no initial net investment and requires a payment by Entity A to Entity B if cumulative heating degree days are less than 4,500 heating degree days during the period from November 1, 1999, to March 31, 2000. If cumulative heating degree days exceed 4,500 heating degree days during that same period, Entity B will make a payment to Entity A. The contract has a floor of 2,500 heating degree days and a cap of 6,500 heating degree days. The payment under the contract is equal to $10,000 multiplied by the cumulative number of heating degree days above or below 4,500 heating degree days and is made on April 5, 2000. Based on the foregoing terms, this contract carries a maximum payout limitation of $20 million by Entity A and $20 million by Entity B regardless of actual temperature levels experienced. The accounting for the degree-day swap by both parties is presented in the table in paragraph [815-45-55-11](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-11). ##### [815-45-55-10](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:fe2c1aa6bdbc10510118cf2ed77f8f849ea204692125ccf72b4237e7139527e1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A purchases on November 1, 1999, a degree-day option from Entity B for a premium payment of $5.85 million. The option requires that Entity B pay Entity A $10,000 for each heating degree day in excess of 4,500 heating degree days (the strike level) cumulative during the period from November 1, 1999, to March 31, 2000. This contract specifies a maximum payout limitation of $20 million regardless of actual temperature levels experienced, thereby effectively stipulating a cap based on 6,500 heating degree days. The contract is settled on April 5, 2000. The accounting for the purchased degree-day option by both parties is presented in the table in the following paragraph. The accounting does not include amounts related to the option premium of $5.85 million. ##### [815-45-55-11](https://asc.understandingaccounting.org/asc/815/45/#815-45-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:50.034Z to 2026-09-10T01:39:50.034Z Record version: sha256:e893d1c93a9e8cef44c98f574eca71ddd39f827ab7024d9a4b38ed112680c0b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table presents the accounting by both parties for the weather derivatives in Cases A and B. - ![](https://asc.understandingaccounting.org/asc-img/GUID-C91956B9-C914-4F74-B8FD-C5ABCDE952E4-low.gif) November December January February March Totals Assumption—average historical temperature 48 degrees 33 degrees 26 degrees 26 degrees 42 degrees Allocation of heating degree days strike 500 (a) " 1,000 " (b) " 1,200 " (c) " 1,100 " (d) 700 (e) " 4,500 " Actual heating degree days 600 700 " 1,700 " " 1,700 " 500 " 5,200 " Warmer (colder) than average in heating degree days (100) 300 (500) (600) 200 (700) Cumulative warmer (colder) in heating degree days (100) 200 (300) (900) (700) Cumulative actual heating degree days 600 " 1,300 " " 3,000 " " 4,700 " " 5,200 " Accounting for degree-day swap: Current period Entity A loss (gain) " $(1,000,000)" " $3,000,000 " " $(5,000,000)" " $(6,000,000)" " $2,000,000 " " $(7,000,000)" Cumulative Entity A loss(gain) " $(1,000,000)" " $2,000,000 " " $(3,000,000)" " $(9,000,000)" " $(7,000,000)" Current period Entity B loss (gain) " $1,000,000 " " $(3,000,000)" " $5,000,000 " " $6,000,000 " " $(2,000,000)" " $7,000,000 " Cumulative Entity B loss (gain) " $1,000,000 " " $(2,000,000)" " $3,000,000 " " $9,000,000 " " $7,000,000 " Accounting for purchased degree-day option: Current period Entity A loss (gain) " $(1,000,000)" " $1,000,000 " " $(3,000,000)" " $(6,000,000)" " $2,000,000 " " $(7,000,000)" Cumulative Entity A loss (gain) " $(1,000,000)" - " $(3,000,000)" " $(9,000,000)" " $(7,000,000)" (a) "(65 - 48) × 30 = 510, rounded to 500 for presentation purposes." (b) "(65 - 33) × 31 = 992, rounded to 1,000 for presentation purposes." (c) "(65 - 26) × 31 = 1,209, rounded to 1,200 for presentation purposes." (d) "(65 - 26) × 28 = 1,092, rounded to 1,100 for presentation purposes." (e) "(65 - 42) × 31 = 713, rounded to 700 for presentation purposes." Source downloaded (UTC): 2026-09-10T01:39:52.581Z to 2026-09-10T01:39:52.581Z Record version: sha256:6b891120f050d64db7ec126be94dd19f21ed6b9c894c6f5d53e55120a4258394 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 815-45-60: 60 Relationships [Read section](https://asc.understandingaccounting.org/asc/815/45/#60-relationships) SEC content: no #### Fair Value Measurements and Disclosures ##### [815-45-60-1](https://asc.understandingaccounting.org/asc/815/45/#815-45-60-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:39:52.581Z to 2026-09-10T01:39:52.581Z Record version: sha256:c449031b8ab8ee87014faa383a820e13b35fe296f6aa2ccfcba4844a43fe279c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a discussion of fair value measurements and related disclosure requirements, see Topic 820.