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Section 4300: Derivatives and Hedging
[U.S. GAAP Codification Topic]
815 Derivatives and hedging
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
[U.S. GAAP before the Codification]
SFAS 133, June 1998, Accounting for Derivative Instruments and Hedging Activities
SFAS 137, June 1999, Accounting for Derivative Instruments and Hedging Activities,
Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133
SFAS 138, June 2000, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133
SFAS 149, April 2003, Amendment of Statement 133 on Derivative Instruments and Hedging Activities
1. Derivatives
(1) Derivative instruments are recognized in financial statements
(2) Derivative instruments are measured at fair value
2. Characteristics of Derivative Instruments, ASC 815-10-15-83
(1) Underlying and notional amounts
(2) No initial net investment or smaller than usual initial net investment
(3) Require or permit net settlement
3. 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
4. Embedded derivative instruments
--> are separated from the host contract
--> and apply SFAS 133 as a derivative instrument
5. Measurement of derivatives
--> derivative instruments are measured at fair value
6. 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
(3a) effective portion of the gains and losses are recognized
--> in other comprehensive income
(3b) ineffective portion of the gains and losses are recognized
--> in earnings
(4) Foreign currency hedge
(4a) hedge of a foreign currency denominated firm commitment
--> gains and losses are recognized in earnings
(4b) hedge of an available-for-sale security
--> gains and losses are recognized in earnings
(4c) hedge of a forecasted foreign currency denominated transaction
--> gains and losses are recognized in other comprehensive income
(4d) hedge of a net investment in a foreign operation
--> gains and losses are recognized in other comprehensive income
7. 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
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