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U.S. GAAP Accounting Standards
Codification Topic 815: Derivatives and Hedging
Overview


Principles of Accounting Intermediate Financial AccountingU.S. GAAP Textbook
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Securities Law Library,  Accounting by Topic Accounting Terms Dictionary


Codification Topic 815
Derivatives and Hedging
Overview


Derivatives and Hedging

SFAS 133, June 1988
"Accounting for Derivative Instruments and Hedging Activities"

Derivatives
1. Derivative instruments are recognized in financial statements
2. Derivative instruments are measured at fair value

Characteristics of Derivative Instruments
1. Underlying and notional amounts
2. No initial net investment or smaller than usual initial net investment
3. Require or permit net settlement

SFAS 133 does not apply to the following:
1. Regular way security trades
2. Normal purchases and normal sales
3. Certain insurance contracts
4. Certain financial guarantee contracts
5. Certain contracts not traded on an exchange
6. Derivatives as impediments to sales accounting
--> e.g., guarantee of residual value to avoid sales-type lease
7. Investments in life insurance
8. Certain investments by defined benefit pension plans
9. Loan commitments
10. Registration payment arrangements, FSP EITF 00-19-2

Embedded derivative instruments
--> are separated from the host contract
--> and apply SFAS 133 as a derivative instrument

Measurement of derivatives
--> derivative instruments are measured at fair value

Gains and losses on derivative instruments

1. No hedging designation 
--> gains and losses are recognized in earnings

2. Fair value hedge
--> gains and losses are recognized in earnings

3. Cash flow hedge
--> effective portion of the gains and losses are recognized in other comprehensive income
--> ineffective portion of the gains and losses are recognized in earnings

4. Foreign currency hedge
(a) hedge of a foreign currency denominated firm commitment
--> gains and losses are recognized in earnings
(b) hedge of an available-for-sale security
--> gains and losses are recognized in earnings
(c) hedge of a forecasted foreign currency denominated transaction
--> gains and losses are recognized in other comprehensive income
(d) hedge of a net investment in a foreign operation
--> gains and losses are recognized in other comprehensive income

If the hedged item is denominated in foreign currency
--> designate as one of the following:

1. Fair value hedge of 
--> an unrecognized firm commitment
--> recognized asset or liability

2. Cash flow hedge of 
--> an unrecognized firm commitment
--> a forecasted transaction

3. Hedge of a net investment in a foreign operation


International Financial Reporting Standards (IFRS)

   IAS 39: Financial instruments: recognition and measurement


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   Codification Topic 815
   Derivatives and Hedging
 
Subtopics of Codification Topic 815
 
   815-10 Overall
   815-15 Embedded derivatives
   815-20 Hedging-general
   815-25 Fair value hedges
   815-30 Cash flow hedges
   815-35 Net investment hedges
   815-40 Contracts in entity's own equity
   815-45 Weather derivatives
 
Accounting Terms of Codification Topic 815-10
 
   All-in-one hedge
   Asymmetrical default provision
   Bid-ask spread
   Capacity contract
   Cash flow hedge
   Cashless exercise
   Control area
   Credit derivative
   Credit risk
   Derivative instrument
   Effective notional amount
   Embedded derivative
   Face amount
   Fair value
   Fair value hedge
   Financial instrument
   Firm commitment
   Forecasted transaction
   Foreign exchange risk
   Forward commitment dollar roll
   Freestanding contract
   Government national mortgage association rolls
   Hybrid instrument
   Interest rate risk
   Internal derivative
   Loan commitment
   London interbank offered rate swap rate
   Mandatorily redeemable financial instrument
   Net share settlement
   Notional amount
   Payment provision
   Prepaid interest rate swap
   Readily convertible to cash
   Regular way security trades
   Synthetic instrument accounting
   Take-or-pay contract
   Trading
   Trading purposes
   Transaction
   Underlying
 
Accounting Terms of Codification Topic 815-15
 
   Annuitization
   Equity kicker
   Equity-indexed annuity
   Expected residual profit
   Market value annuity
   Periodic ratchet design
   Point-to-point design
   Prepayable

 
Accounting Terms of Codification Topic 815-20
 
   Auction rate notes
   Benchmark interest rate
   Expected cash flow
   Intra-entity derivative
   LIBOR swap rate
   Make-whole provision
   Noncontrolling interest
   Stock appreciation right
   Stub period
   Stub rate
   Time value of an option

 
Accounting Terms of Codification Topic 815-25
 
   Zero-coupon method

 
Accounting Terms of Codification Topic 815-30
 
   Comprehensive income

 
Accounting Terms of Codification Topic 815-35
 

 
Accounting Terms of Codification Topic 815-40
 
   Equity restructuring
   Exercise contingency
   Lock-up options
   Net cash settlement
   Physical settlement
   Standard antidilution provisions
   Top-off provision

 
Accounting Terms of Codification Topic 815-45
 
   Weather derivative

 

 

   Other Topics at the Codification 800 
Accounting Standards Codification, ASC, Overview
 
ASC Codification Topic 805: Business Combinations
ASC Codification Topic 808: Collaborative Arrangements
 
ASC Codification Topic 810: Consolidation
ASC Codification Topic 815: Derivatives and Hedging
 
ASC Codification Topic 820: Fair Value Measurements and Disclosures
ASC Codification Topic 825: Financial Instruments
 
ASC Codification Topic 830: Foreign Currency Matters
ASC Codification Topic 835: Interest
 
ASC Codification Topic 840: Leases
ASC Codification Topic 845: Nonmonetary Transactions
 
ASC Codification Topic 850: Related Party Disclosures
ASC Codification Topic 852: Reorganizations
ASC Codification Topic 855: Subsequent Events
 
ASC Codification Topic 860: Transfers and Servicing


   U.S. GAAP Codification of Accounting Standards
Accounting Standards Codification, ASC, Overview
ASC Codification 200: Presentation
ASC Codification 300: Assets
ASC Codification 400: Liabilities
ASC Codification 500: Equity
ASC Codification 600: Revenue
ASC Codification 700: Expenses
ASC Codification 800: Broad Transactions
ASC Codification 900: Industry

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