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All reporting entities must apply ASC 815 to all financial instruments or other contracts that meet the definition of a derivative and do not qualify for one of its scope exceptions.

2.2.1 Practicability of estimating fair value

All financial instruments that meet the definition and do not qualify for a scope exception are accounted for as derivatives under ASC 815. There is no practicability exception that permits a reporting entity to avoid calculating the required fair value measurements for derivative instruments. As stated in ASC 815-10-10-1(b), fair value is the only relevant measurement attribute for derivatives.

2.2.2 Unit of account

When evaluating whether a contract or embedded component meets the definition of a derivative, a reporting entity should assess whether a component is freestanding or embedded in another instrument. See DH 4.2.1.1 for information on that determination.
ASC 815-10-15-9 specifies that two or more derivatives should be viewed as a unit if they are entered into contemporaneously and in contemplation of each other, with the same counterparty, relating to the same risk, with no economic or substantive business purpose for structuring them separately. Therefore, if the two contracts together result in no net exposure, a reporting entity may have created a combined financial instrument that is not in the scope of ASC 815 and its components cannot be separated for hedging purposes.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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