2.1 Overview
ASC 815-20
25-1 This Section sets forth
criteria that must be met for designated hedging instruments
and hedged items or transactions to qualify for fair value
hedge accounting, cash flow hedge accounting, and accounting
for a hedge of a net investment in a foreign operation. The
criteria are organized as follows:
- Formal designation and documentation at hedge inception
- Eligibility of hedged items and transactions
- Eligibility of hedging instruments
- Hedge effectiveness
- Hedge accounting provisions applicable to certain private companies
- Hedge accounting provisions applicable to certain not-for-profit entities.
ASC 815-20 provides the framework for determining (1) the types of
hedging relationships that qualify for hedge accounting and (2) the requirements for
applying hedge accounting in those relationships. Although ASC 815-20-25-1
establishes the order of the guidance in ASC 815-20-25, we believe that it will be
more useful to readers if the guidance is discussed in the order in which an entity
performs hedging activities in response to its risk exposure. Accordingly, the
discussion in this chapter of the Roadmap is arranged as follows:
- The types of items and transactions that qualify as hedgeable items (see Section 2.2).
- The types of risks within those items that may be hedged (see Section 2.3).
- The types of hedging instruments that may be used to achieve hedge accounting (see Section 2.4).
- What it means to have a highly effective hedge (see Section 2.5), which is necessary for the application of hedge accounting.
- The documentation of the hedging relationship and the ongoing criteria for applying and maintaining hedge accounting, including specific considerations for certain private companies and not-for-profit entities (see Section 2.6).