3.5 Reassessment
ASC 815-10
25-2 If a
contract that did not meet the definition of a derivative
instrument at acquisition by the entity meets the definition
of a derivative instrument after acquisition by the entity,
the contract shall be recognized immediately as either an
asset or liability with the offsetting entry recorded in
earnings.
25-3 If a
contract ceases to be a derivative instrument pursuant to
this Subtopic and an asset or liability had been recorded
for that contract, the carrying amount of that contract
becomes its cost basis and the entity shall apply other
generally accepted accounting principles (GAAP) that are
applicable to that contract prospectively from the date that
the contract ceased to be a derivative instrument. If the
derivative instrument had been designated in a cash flow
hedging relationship and a gain or loss is recorded in
accumulated other comprehensive income, then the guidance in
Sections 815-30-35 and 815-30-40 shall be applied
accordingly.
Contract That Is a
Derivative Instrument After Acquisition
30-3 A contract
recognized under paragraph 815-10-25-2 because it meets the
definition of a derivative instrument after acquisition by
an entity shall be measured initially at its then-current
fair value.
An entity should reevaluate its application of ASC 815 as of each reporting period.
This assessment should also occur at least quarterly or whenever the company
prepares financial statements for an external party (e.g., filing financial
statements with an exchange or providing financial statements to a bank for debt
covenant purposes).
If a financial instrument or a contract that did not initially meet the definition of
a derivative later meets that definition, an entity should recognize the instrument
as a derivative asset or a liability at its then current fair value. Alternatively,
if an instrument that was initially recognized as a derivative later ceases to meet
that definition, other guidance in U.S. GAAP applies.
An entity should also continually reassess whether an embedded feature qualifies as a
derivative and, if so, whether it qualifies for any derivative scope exception. See
Chapters 4, 5, and 6 for further discussion of embedded
derivatives.