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ASC 815 Derivatives and Hedging

ASC 815 Derivatives and Hedging

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ASC 815, Derivatives and Hedging, provides comprehensive guidance on derivative and hedging transactions. It sets forth the definition of a derivative instrument and specifies how to account for such instruments, including derivatives embedded in hybrid instruments. In addition, ASC 815 establishes when reporting entities, in certain limited, well-defined circumstances, may apply hedge accounting to a relationship involving a designated hedging instrument and hedged exposure. Hedge accounting provides an alternative, special way of accounting for such relationships. ASC 815 also provides guidance on how reporting entities determine whether an instrument is (1) indexed to the reporting entitys own stock and (2)
considered to be settled in the reporting entitys own stock. Such a determination will dictate whether an
instrument should be accounted for as debt or equity and the appropriate accounting for the instrument.
Finally, ASC 815 addresses the accounting for non-exchange-traded weather derivatives. The Codification also provides certain industry-specific derivatives and hedging guidance, but such guidance is included in the industry sections of the Codification.

Related resources
See our comprehensive collection of news and publications related to derivatives and hedging.

International guidance
For the IASB's guidance on this topic, see IAS 39, Financial Instruments: Recognition and Measurement.

Overview
The full text of ASC 815 can be found in the FASB Accounting Standards Codification (link to the FASB's
Web site; registration required). Also, the full text of the Codification and Deloitte-authored Q&As related
to the Codification are available in Deloitte's Technical Library Web site (subscription required).
ASC 815 comprises the following eight Subtopics:
Overall
Embedded Derivatives
HedgingGeneral
Fair Value Hedges
Cash Flow Hedges
Net Investment Hedges
Contracts in Entity's Own Equity
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Weather Derivatives
Below is an overview of each Subtopic.

815-10 Overall
ASC 815-10 notes that it "defines derivative instrument, addresses the pervasive scope of this Topic, and
specifies the primary accounting for derivative instruments within this Topic's scope." It further notes the
following information regarding the entire 815 Topic:
This Topic generally provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of either of the following:
a. The changes in the fair value of the hedged asset or liability that are attributable to the hedged
risk
b. The earnings effect of the hedged forecasted transaction.

815-15 Embedded De riv atives

ASC 815-15 provides guidance for embedded derivatives that may be included in "[c]ontracts that do not
in their entirety meet the definition of a derivative instrument, such as bonds, insurance policies, and
leases."

815-20 HedgingGeneral
ASC 815-20 notes the following:
This Subtopic provides guidance on accounting for and financial reporting of three types of hedging
relationships: fair value hedges, cash flow hedges, and hedges of a net investment in a foreign operation.

815-25 Fair Value Hedges

ASC 815-25 provides incremental guidance to ASC 815-20 on accounting for and financial reporting of
fair value hedges.

815-30 Cash Flow Hedges

ASC 815-30 provides incremental guidance to ASC 815-20 on accounting for and financial reporting of
cash flow hedges.

815-35 Net Investment Hedges

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ASC 815-35 provides incremental guidance to ASC 815-20 on accounting for and financial reporting of
hedges of a net investment in a foreign operation.

815-40 Contracts in Entity's Own Equity

ASC 815-40 notes the following:
For a number of business reasons, an entity may enter into contracts that are indexed to, and
sometimes settled in, its own stock. This Subtopic provides guidance on accounting for such contracts. Examples of these contracts include put and call options (both written and purchased) and
forward contracts (for both sales and purchases). These contracts may be settled using a variety of
settlement methods, or the issuing entity or counterparty may have a choice of settlement methods.
The contracts may be either freestanding or embedded in another financial instrument.

815-45 Weather De riv atives

ASC 815-45 provides guidance on the financial accounting and reporting for weather derivatives.
Content from the FASB Accounting Standards Codification included at http://www.usgaapplus.com is
copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 068565116, and is reproduced with permission.

FASB Accounting Standards Updates

The following ASUs amended the guidance in this Topic:
ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force) (issued March 2016; effective December 15, 2016, for public entities)
ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force) (issued March 2016; effective December
15, 2016, for public entities).
ASU 2016-03, IntangiblesGoodwill and Other (Topic 350), Business Combinations (Topic 805),
Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition
Guidance (a consensus of the Private Company Council) (issued March 2016: effective immediately).
ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in
the Form of a Share Is More Akin to Debt or to Equity (issued November 2014; effective December 15, 2015, and interim periods thereafter).
ASU 2014-09, Revenue From Contracts With Customers (issued May 2014; effective December
15, 2016, for public entities).
ASU 2014-03, Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable,
Pay-Fixed Interest Rate Swaps (a consensus of the Private Company Council) (issued January
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16, 2014; effective December 15, 2014).

ASU 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 (a consensus of the FASB Emerging Issues Task Force) (issued July 2013; effective July
17, 2013).
ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures About Offsetting
Assets and Liabilities (issued January 2013; effective January 1, 2013).
ASU 2012-04, Technical Corrections and Improvements (issued October 2012; effective December 15, 2012, for public entities and December 15, 2013, for nonpublic entities).
ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income
(issued June 2011; effective December 15, 2011, for public entities and December 15, 2012, for
nonpublic entities).
ASU 2010-11, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded
Credit Derivatives (issued March 2010; effective June 15, 2010).
ASU 2010-08, Technical Corrections to Various Topics (issued February 2010; effective February 2010).
ASU 2010-07, Not-for-Profit Entities (Topic 958): Not-for-Profit Entities: Mergers and Acquisitions
(issued January 2010; effective December 15, 2009).
ASU 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets
(issued December 2009; effective November 15, 2009).
Proposed ASU EITF-15AApplication of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets (a consensus of the FASB
Emerging Issues Task Force) (issued August 2015; effective upon issuance).

Proposed FASB Accounting Standards Updates

The following are proposed amendments to ASC 815:
Proposed ASU 2015-220Disclosures About Hybrid Financial Instruments With Bifurcated Embedded Derivatives (Topic 815) (issued February 2015).
Proposed ASU 1810-100Accounting for Financial Instruments and Revisions to the Accounting
for Derivative Instruments and Hedging ActivitiesFinancial Instruments (Topic 825) and Derivatives and Hedging (Topic 815) (issued May 2010).
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