A derivative scope screen tests the complete contract before any hedge-accounting label is applied. The screen identifies an underlying, a notional amount or payment provision, the initial net investment, and the settlement characteristic. It also checks scope exceptions.
Test settlement with facts
Net settlement may be written into the contract, available through a market mechanism, or achieved by delivery of an asset that is readily convertible to cash. ASC 815-10-15-100 begins the detailed net-settlement guidance. A quoted spot price alone does not prove that the contracted quantity can be converted readily to cash.
For example, a copper forward that settles the price difference in cash has direct net settlement. A physically settled contract needs different evidence, including the market for the delivered quantity. Record the contract clause, market evidence, and date for the route used.
Keep scope and purpose apart
An economic hedge is not automatically a derivative, and a derivative is not automatically a qualifying accounting hedge. Test normal-purchase and normal-sale terms and other applicable exceptions. If a host contract contains an indexed or optional feature, open an embedded-feature review. The screen produces a supported scope conclusion or a precise exception; it does not infer missing terms from the risk-management objective.
Put the concept to work
Analyze this concept
- Analyze a supplied file for derivative scope screen, show the evidence and mechanics, and identify any conclusion that remains outside the supplied scope.
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