In an acquisition, the acquired entity ceases to exist and the acquiring entity survives. Upon acquisition, ASC 815-20-55-199 through ASC 815-20-55-203, Example 24: No Continuation of the Shortcut Method Following a Purchase Business Combination, states that an acquired entity cannot continue a shortcut method hedge following a purchase business combination because the original hedging relationship is dedesignated, and a new hedging relationship is redesignated at the combined-entity level. At that point, the new hedging relationships will need to be reassessed to determine whether they qualify for the shortcut method at the combined-entity level, which is extremely unlikely because the derivatives would have fair values other than zero at the inception date of the new hedging relationship.

The new entity will need to elect whether or not to designate derivatives acquired as part of a business combination in new hedge relationships and demonstrate that the new hedging relationships meet all of the criteria to achieve hedge accounting, including that they are expected to be highly effective. It may be challenging to achieve hedge accounting for a redesignated hedge following a purchase business combination because: