cash flow hedge

Broad Transactions3

1. 815-30Cash Flow Hedges815 Derivatives and Hedging

   ASC 815-30 provides the incremental accounting for cash flow hedges — derivatives designated as hedging the variability in expected future cash flows of a forecasted transaction or of a recognized variable-cash-flow asset/liability. The entire change in fair value of the hedging instrument that is included in the assessment of effectiveness is recorded in other comprehensive income and reclassified into earnings in the same period(s) the hedged forecasted transaction affects earnings, presented in the same income statement line item as the hedged item. The Subtopic also governs excluded components, quantitative effectiveness methods for interest rate hedges, and discontinuation/dedesignation (including immediate reclassification when the forecasted transaction is probable of not occurring).

2. 815-944Financial Services—Insurance815 Derivatives and Hedging

   This Subtopic applies Topic 815's derivative and hedging guidance to insurance entities, chiefly for long-duration contracts such as variable annuities. Its core rules are that a traditional variable annuity contract is not a hybrid instrument containing an embedded derivative requiring bifurcation (815-944-25-1 through 25-2), that the traditional variable annuity serves as the host contract for a nontraditional variable annuity whose other features (excluding market risk benefits) may be embedded derivatives (815-944-25-5), and that these conclusions are exceptions that may not be analogized to other structures (815-944-25-3, 25-6). It also illustrates when an insurer may apply cash flow hedge accounting to forecasted interest credited on surrenderable fixed-rate contracts.

3. 815-954Health Care Entities815 Derivatives and Hedging

   ASC 815-954 tells not-for-profit, business-oriented health care entities how to apply derivative and hedge accounting. The core rule is parity with for-profit entities: items that would hit a for-profit's income from continuing operations must hit the NFP health care entity's performance indicator, and items excluded (e.g., amounts in other comprehensive income) must be excluded from the performance indicator. Because these entities need not present a separate equity component, the guidance substitutes tailored disclosures about the accumulated derivative gain or loss excluded from the performance indicator.