Fair-value hedge accounting addresses exposure to changes in the fair value of a recognized item, an unrecognized firm commitment, or an eligible component attributable to a designated risk. A qualifying schedule keeps the derivative and hedged item as separate records.
Pair the signed changes
ASC 815-25-35-1 provides the subsequent-measurement framework for fair-value hedges. Under a supplied qualifying relationship, recognize the derivative fair-value change and the hedged item's change attributable to the designated risk in current earnings. Adjust the hedged item's carrying amount as required.
For example, a $42,000 derivative gain and a $39,000 attributable decrease in the hedged item produce a $3,000 net earnings gain. Use signed columns so the calculation does not hide direction. The $3,000 difference can reflect imperfect offset; it is not automatically an error.
Carry the basis forward
The hedged-item adjustment can affect later interest, sale, or other accounting. Reconcile it into the item's main schedule. Reconcile the derivative balance and settlement separately. Keep designation, effectiveness, valuation, excluded components, presentation, and disclosure support with the bridge. If the hedge is discontinued, preserve the date and later accounting instead of deleting the relationship history.
Put the concept to work
Analyze this concept
- Analyze a supplied file for fair-value hedge accounting, show the evidence and mechanics, and identify any conclusion that remains outside the supplied scope.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.