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 1 – DH 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 5 – DH 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.
- DH 12 discusses the effective date and transition of the August 2017 amendments.
Discussion of presentation and disclosure requirements is included in FSP 19.
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, global edition (FV)
- Financial statement presentation (FSP)
- Financing transactions (FG)
- Income taxes (TX)
- Insurance contracts (IG)
- Reference rate reform (REF)
- Utilities and power companies (UP)
Summary of significant changes
Following is a summary of the noteworthy revisions to the guide since it was last updated in January 2018. Additional updates may be made to future versions to keep pace with significant developments.
Revisions to guide made in November 2020
DH 1, Introduction to derivatives
- DH 1.1.1, Reference rate reform: Cross-guide applicability, was added.
- DH 3.3.1, Share-based payments, was updated to incorporate the guidance in ASU 2018-07.
DH 4, Embedded derivatives
- DH 4.6.2, Insurance hosts, was updated for changes in the assessment of embedded derivatives in insurance host contracts once ASU 2018-12 is adopted.
DH 6, Hedges of financial assets and liabilities
- DH 22.214.171.124, Designating the benchmark interest rate, was updated for the addition of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate as an eligible benchmark interest rate following ASU 2018-16.
- Questions DH 6-12 and DH 6-13 were added related to partial-term hedging relationships.
- DH 126.96.36.199, Using a swaption to hedge forecasted interest payments, was added to clarify whether a swaption was permitted to be used as the hedging instrument in hedging a fixed-rate debt issuance.
DH 12, ASU 2017-12: Effective date and transition
- DH 12.2, Effective date, was updated for ASU 2019-10 which amends the effective date of ASU 2017-12 for entities other than public business entities.
Revisions to guide made in July 2020
DH 4, Embedded derivatives
- DH 4.9, SOFR embedded derivative considerations, was added.
Revisions to guide made in October 2019
Former DH 12, Presentation and disclosure
- This chapter was removed and moved to FSP 19.
DH 13, Effective date and transition
- The content from former Chapter 13, Effective date and transition, was moved to chapter 12.
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.