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A PDF version of this publication is attached here: Derivatives & hedging guide - July 2022 (PDF 5.84mb)
PwC is pleased to offer our updated Derivative and hedging guide. It provides guidance on the accounting for derivatives and hedging.
The FASB first issued its comprehensive standard on the accounting for derivatives and hedging in 1998. Since then, it has been amended numerous times, including a significant amendment issued in August 2017.
  • DH 1DH 4 discuss derivatives, including the definition of a derivative in ASC 815, Derivative Instruments and Hedging Activities, scope exceptions to ASC 815, and guidance on embedded derivatives.
  • DH 5DH 9 address the requirements for applying hedge accounting and provide guidance on the specific requirements for hedges of financial, nonfinancial and foreign currency risk, and the recognition and measurement of the hedged items and hedging instruments.
  • DH 10 discusses the discontinuance of hedge accounting.
  • DH 11 discusses guidance specific to private companies.

Discussion of presentation and disclosure requirements is included in FSP 19.
This guide assumes adoption of ASU 2022-01, Derivatives and Hedging (Topic 815), Fair Value Hedging – Portfolio Layer Method. This guide also assumes the adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments and related updates to that guidance.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues.
This guide should be used in combination with a thorough analysis of the relevant facts and circumstances, review of the authoritative accounting literature, and appropriate professional and technical advice.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations, are:
  • Business combinations and noncontrolling interests (BCG)
  • Consolidation (CG)
  • Fair value measurements (FV)
  • Financial statement presentation (FSP)
  • Financing transactions (FG)
  • Income taxes (TX)
  • Insurance contracts (IG)
  • Loans and investments (LI)
  • Reference rate reform (REF)
  • Utilities and power companies (UP)

Summary of significant changes
Following is a summary of recent noteworthy revisions to the guide. Additional updates may be made to future versions to keep pace with significant developments.
Revisions to guide made in July 2022
DH 4, Embedded derivatives
  • Certain illustrative examples and Q&As related to the analysis of embedded derivatives within debt and equity hosts that are also included in FG 1.6 and FG 5.4 were removed from this chapter. See PwC’s Financing transactions guide for additional details.

DH 6, Hedges of financial assets and liabilities
  • Q&A DH 6-8 was added to DH 6.3.3.4 to address whether a cash flow hedge of a group of forecasted transactions can include different iterations of SOFR as the hedged item.
  • DH 6.5 was updated for the issuance of ASU 2022-01 and the accounting for portfolio layer method hedges.

DH 7, Hedges of nonfinancial assets and liabilities

DH 9, Effectiveness
  • Discussion of considerations for hedge relationships that reference SOFR and the ability to use certain hedge effectiveness methodologies that assume perfect effectiveness was added to DH 9.
  • DH 9.11.2 was updated for ASU 2022-01 for effectiveness considerations for portfolio layer method hedges.

DH 10, Discontinuance
  • DH 10.3.8 was updated for ASU 2022-01 for the allocation of basis adjustments and designation sequence when discontinuing or partially discontinuing a portfolio layer method hedging relationships where multiple relationships are designated against the same closed pool of assets.

DH 12, ASU 2017-12: Effective date and transition
  • DH 12 was removed as ASU 2017-12 is now effective for all companies.

Copyrights
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.
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