4. Amend paragraph 815-20-55-56 and add paragraph 815-20-55-56A, with a link to transition paragraph 815-20-65-2, as follows:
Derivatives and Hedging—Hedging—General
Implementation Guidance and Illustrations
> Implementation Guidance
> > Hedge Effectiveness
815-20-55-56 This Subtopic permits a hedging relationship to be dedesignated (that is, discontinued) at any time. (See paragraphs 815-25-40-1(c) and 815-30-40-1(c).) If an entity wishes to change any of the critical terms of the hedging relationship (including the method designated for use in assessing hedge effectiveness), as documented at inception, the mechanism provided in this Subtopic to accomplish that change is the designation of the original hedging relationship and the designation of a new hedging relationship that incorporates the desired changes. The dedesignation of an original hedging relationship and the designation of a new hedging relationship represents the application of this Subtopic and is not a change in accounting principle under Topic 250, even though the new hedging relationship may differ from the original hedging relationship only with respect to the method designated for use in assessing the hedge effectiveness of that hedging relationship. Although paragraph 815-20-35-19 refers to discontinuing an existing hedging relationship and then designating and documenting a new hedging relationship using an improved method for assessing effectiveness, that reference was not meant to imply that the perceived improved method had to be justified as a preferable method of applying an accounting principle under Topic 250.
815-20-55-56A For the purposes of applying the guidance in paragraph 815-20-55-56, a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a change in a critical term of the hedging relationship.
5. Add paragraph 815-20-65-2, and its related heading, as follows:
> Transition Related to Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
815-20-65-2 The following represents the transition and effective date information related to Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships:
a. For public business entities¸ the pending content that links to this paragraph shall be effective for fiscal years beginning after December 15,2016, and interim periods within those fiscal years.
b. For all other entities, the pending content that links to this paragraph shall be effective for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018.
c. An entity shall apply the pending content that links to this paragraph on either a prospective or a modified retrospective basis.
d. For entities electing the prospective approach, the pending content that links to this paragraph shall be applied to all existing hedging relationships in which a change in the counterparty to a derivative instrument occurs after an entity adopts the pending content that links to this paragraph.
e. For entities electing the modified retrospective approach, the pending content that links to this paragraph shall be applied to all derivative instruments that meet all of the following conditions:
1. The derivative instrument was outstanding during all or a portion of the periods presented in the financial statements.
2. The derivative instrument was previously designated as a hedging instrument in a hedging relationship.
3. The hedging relationship was dedesignated solely due to a novation of the derivative instrument, and all other hedge accounting criteria would have otherwise continued to be met (including those in paragraphs 815-20-35-14 through 35-18).
f. Under the modified retrospective approach, an entity shall not revise its financial statements for derivative instruments that are no longer outstanding as of the beginning of the earliest period presented in the financial statements.
g. Under the modified retrospective approach, derivative instruments that were dedesignated from hedging relationships during a period presented in the financial statements shall have:
1. The effect of the hedge dedesignation removed from the financial statements for each period presented.
h. Under the modified retrospective approach, derivative instruments that were dedesignated from hedging relationships before the beginning of the earliest period presented that remain outstanding during all or a portion of the periods presented shall have:
1. The effect of the hedge dedesignation removed from the financial statements for each period presented
2. Beginning retained earnings reflect a cumulative-effect adjustment for effects to financial statements before the beginning of the earliest period presented.
i. Under the modified retrospective approach, assessments of effectiveness and measurements of ineffectiveness required by the original hedge documentation should be performed for all periods between the date on which the hedging relationship was dedesignated due solely to a novation and the date on which an entity adopts the pending content that links to this paragraph.
j. Early application of the pending content that links to this paragraph is permitted for all entities, including adoption in an interim period.
k. An entity shall provide the disclosures in paragraphs 250-10-50-1(a) and 250-10-50-2, as applicable, in the period the entity adopts the pending content that links to this paragraph.
l. An entity that elects to apply the pending content that links to this paragraph using the modified retrospective approach also shall provide the disclosures in paragraph 250-10-50-1(b)(1) and (b)(3), as applicable, in the period the entity adopts the pending content that links to this paragraph.