# ASC 825-10-25: Financial Instruments — Overall — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/825/10/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:504372e91eba993f32d5716926cb97175db55a7186f2d66eda0c44a8e5182a56 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 825-10-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/825/10/#25-recognition) SEC content: no ### Fair Value Option #### Overall Guidance ##### [825-10-25-1](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:fb8f0a1ad0329e75864a1108c8dafd4a1d6b09d278a11e5af24abfcb7f946aa0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic permits all entities to choose, at specified election dates, to measure eligible items 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.") (the fair value option). ##### [825-10-25-2](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:e259f72601f8a9348dfe8c2ea1a5036591eddc6a05ed75dace3c1e1b9d131ca6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The decision about whether to elect the fair value option: 1. a Shall be applied instrument by instrument, except as discussed in paragraph [825-10-25-7](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-7) 2. b Shall be irrevocable (unless a new election date occurs, as discussed in paragraph [825-10-25-4](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-4)) 3. c Shall be applied only to an entire instrument and not to only specified risks, specific cash flows, or portions of that instrument. An entity may decide whether to elect the fair value option for each eligible item on its election date. Alternatively, an entity may elect the fair value option according to a preexisting policy for specified types of eligible items. ##### [825-10-25-3](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:84badb888b737fa1a806c75555b70b9bd91ba503b09491dca9deb0e14b2e07b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. ##### [825-10-25-4](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-4) Pending content: yes Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:bbe6e390d04abdd9dc3bf120359413bd6b7e8d3d4b22e4340c4d12a868129753 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may choose to elect the fair value option for an eligible item only on the date that one of the following occurs: 1. a The entity first recognizes the eligible item. 2. b The entity enters into an eligible [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."). 3. c Financial assets that have been reported at fair value with unrealized gains and losses included in earnings because of specialized accounting principles cease to qualify for that specialized accounting (for example, a transfer of assets from a subsidiary subject to Subtopic 946-10 to another entity within the consolidated reporting entity not subject to that Subtopic). 4. d The accounting treatment for an investment in another entity changes because the investment becomes subject to the equity method of accounting. 1. 1 [Subparagraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). 2. 2 [Subparagraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). 5. e An event that requires an eligible item to be measured at fair value at the time of the event but does not require fair value measurement at each reporting date after that, excluding the recognition of impairment under lower-of-cost-or-market accounting or accounting for securities in accordance with either Topic 321 on investments—equity securities or Topic 326 on measurement of credit losses. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [105-10-65-10](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-10)An entity may choose to elect the fair value option for an eligible item only on the date that one of the following occurs: 1. a The entity first recognizes the eligible item. 2. b The entity enters into an eligible [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."). 3. c Financial assets that have been reported at fair value with unrealized gains and losses included in earnings because of specialized accounting principles cease to qualify for that specialized accounting (for example, a transfer of assets from a subsidiary subject to Subtopic 946-10 to another entity within the consolidated reporting entity not subject to that Subtopic). 4. d The accounting treatment for an investment in another entity changes because the investment becomes subject to the equity method of accounting. 1. 1 [Subparagraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). 2. 2 [Subparagraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/). 5. e An event that requires an eligible item to be measured at fair value at the time of the event but does not require fair value measurement at each reporting date after that, excluding the recognition of impairment under lower-of-cost-or-market accounting, the recognition of other-than-temporary impairment for equity method investments in accordance with Topic 323 on investments—equity method and joint ventures, or accounting for securities in accordance with either Topic 321 on investments—equity securities or Topic 326 on measurement of credit losses. ##### [825-10-25-5](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:0aa624ae3bfa607773359dfaf3b0371c98ab9d958dd2dded1ad3511f90527616 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some of the events that require remeasurement of eligible items at fair value, initial recognition of eligible items, or both, and thereby create an election date for the fair value option as discussed in paragraph [825-10-25-4(e)](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-4) are: 1. a Business combinations, as defined in Subtopic 805-10 2. b Consolidation or deconsolidation of a subsidiary or VIE 3. c Significant modifications of debt, as defined in Subtopic 470-50. ##### [825-10-25-6](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:400b0bf8416805cf8bd87fed996871558ac1c6777ec8437818e004aba545adae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An acquirer, parent, or primary beneficiary decides whether to apply the fair value option to eligible items of an acquiree, subsidiary, or consolidated VIE, but that decision applies only in the consolidated financial statements. Fair value option choices made by an acquired entity, subsidiary, or VIE continue to apply in separate financial statements of those entities if they issue separate financial statements. ##### [825-10-25-7](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:624007f95fb99dc76c2a02add3c64ce32ca14a15b747202aca798504dff9f2bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fair value option may be elected for a single eligible item without electing it for other identical items with the following four exceptions: 1. a If multiple advances are made to one borrower pursuant to a single contract (such as a line of credit or a construction loan) and the individual advances lose their identity and become part of a larger loan balance, the fair value option shall be applied only to the larger balance and not to each advance individually. 2. b If the fair value option is applied to an investment that would otherwise be accounted for under the equity method of accounting, it shall be applied to all of the investor's financial interests in the same entity (equity and debt, including guarantees) that are eligible items. 3. c If the fair value option is applied to an eligible insurance or [reinsurance](https://asc.understandingaccounting.org/glossary/r/#reinsurance "A transaction in which a reinsurer (assuming entity), for a consideration (premium), assumes all or part of a risk undertaken originally by another insurer (ceding entity). For indemnity reinsurance, the legal rights of the insured are not affected by the reinsurance transaction and the insurance entity issuing the insurance contract remains liable to the insured for payment of policy benefits. Assumption or novation reinsurance contracts that are legal replacements of one insurer by another extinguish the ceding entity's liability to the policyholder.") contract, it shall be applied to all claims and obligations under the contract. 4. d If the fair value option is elected for an insurance contract (base contract) for which integrated or nonintegrated contract features or coverages (some of which are called riders) are issued either concurrently or subsequently, the fair value option also must be applied to those features or coverages. The fair value option cannot be elected for only the nonintegrated contract features or coverages, even though those features or coverages are accounted for separately under Subtopic 944-30. Paragraph [944-30-35-30](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-30) defines a nonintegrated contract feature in an insurance contract. For purposes of applying this Subtopic, neither an integrated contract feature or coverage nor a nonintegrated contract feature or coverage qualifies as a separate instrument. ##### [825-10-25-8](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:173d601a2f9648f82fb127defcb0f5e10e7141e6902866a05659253a46720fa5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [825-10-25-9](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:01e34a58fe2896da53f3e7841e50e54a231e5fe279d491978a43ae1d983e7733 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [825-10-25-10](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:ae4247d512f39152330bd02deade6a69a0c7062173b0690dc951c3292993d1db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fair value option need not be applied to all instruments issued or acquired in a single transaction (except as required by paragraph [825-10-25-7(a) through (b)](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-7)). For example, investors in shares of stock and registered bonds might apply the fair value option to only some of the shares or bonds issued or acquired in a single transaction. For this purpose, an individual bond is considered to be the minimum denomination of that debt security. ##### [825-10-25-11](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:654eb0abceff4c1d56d843046b274d1c2537dfcdf82d545ce25f9d190b2a21c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [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 is legally a single contract may not be separated into parts for purposes of applying the fair value option. In contrast, a loan syndication arrangement may result in multiple loans to the same borrower by different lenders. Each of those loans is a separate instrument, and the fair value option may be elected for some of those loans but not others. ##### [825-10-25-12](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:93a7f5e9e4dd3c7bb5a6bcc70787170c30df555c3b75e7d798e99ff7b995bc5d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An investor in an equity security may elect the fair value option for its entire investment in that equity security, including any fractional shares issued by the investee (for example, fractional shares that are acquired in a dividend reinvestment program). ##### [825-10-25-13](https://asc.understandingaccounting.org/asc/825/10/#825-10-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:44:23.791Z to 2026-09-10T01:44:23.791Z Record version: sha256:4f84e9f04e59f74ca11b3a47fefe86497bf478ec140b385fa1d41149579e49f7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the issuer of a [liability issued with an inseparable third-party credit enhancement](https://asc.understandingaccounting.org/glossary/l/#liability-issued-with-an-inseparable-third-party-credit-enhancement "A liability that is issued with a credit enhancement obtained from a third party, such as debt that is issued with a financial guarantee from a third party that guarantees the issuer's payment obligation.") (for example, debt that is issued with a contractual third-party guarantee), the unit of accounting for the liability measured or disclosed at fair value does not include the third-party credit enhancement. This paragraph does not apply to the holder of the issuer's credit-enhanced liability or to any of the following financial instruments or transactions: 1. a A credit enhancement granted to the issuer of the liability (for example, deposit insurance provided by a government or government agency) 2. b A credit enhancement provided between reporting entities within a consolidated or combined group (for example, between a parent and its subsidiary or between entities under common control).