3.5 Discontinuing a Fair Value Hedge

In certain circumstances, an entity may be required to discontinue hedge accounting because of a change in circumstances. In other cases, an entity may elect to do so. Section 3.5.1 discusses possible reasons why hedge accounting might be discontinued for a fair value hedging relationship, and Section 3.5.2 walks through the accounting for the hedged item after such a discontinuation, including a discussion of amounts in AOCI related to components that were excluded from the hedge effectiveness assessment.

3.5.1 Reasons for Discontinuing a Fair Value Hedge

ASC 815-25

40-1 An entity shall discontinue prospectively the accounting specified in paragraphs 815-25-35-1 through 35-6 for an existing hedge if any one of the following occurs:

Any criterion in Section 815-20-25 is no longer met.
The derivative instrument expires or is sold, terminated, or exercised.
The entity removes the designation of the fair value hedge.

3.5.1.1 Derivative or Hedged Item No Longer Held

ASC 815-25-40-1(b) requires an entity to discontinue hedge accounting for a fair value hedging relationship if the hedging derivative “expires or is sold, terminated, or exercised.” In such a case, hedge accounting should be applied through the date of the of expiration, sale, termination, or exercise if the hedging relationship met the criteria to qualify for hedge accounting until then. After that date, there will no longer be a derivative measured at fair value on the balance sheet, so the hedged item should no longer be remeasured for changes in its fair value that are attributable to the hedged risk unless it is designated as the hedged item in a new qualifying fair value hedging relationship.

ASC 815-20-40-1 does not specifically mention the sale, termination, or exercise of the hedged item. However, if the item is no longer recognized on the balance sheet, there is no longer a hedged item with exposure to changes in fair value that are attributable to the hedged risk that could affect earnings. Therefore, the hedging relationship would no longer meet the general hedging requirements of ASC 815-20-25 because there would not be an eligible hedged item. Accordingly, the entity would need to discontinue hedge accounting for the hedging relationship in accordance with ASC 815-20-40-1(a).

3.5.1.1.1 Derivative Modifications

ASC 815 does not contain explicit guidance on how to determine whether the modification of an existing derivative instrument results in the “termination” of the original derivative and replacement with a new one. If the premodified derivative was a hedging instrument in a qualified hedging relationship and the modification is considered a termination of the derivative, the hedging relationship would be discontinued under ASC 815-25-40-1(b) (for a fair value hedge) or ASC 815-30-40-1(b) (for a cash flow hedge). In addition, ASC 815-20-55-56 states, in part, that “[i]f an entity wishes to change any of the critical terms of the hedging relationship (including the method designated for use in assessing hedge effectiveness), as documented at inception, the mechanism provided in this Subtopic to accomplish that change is the dedesignation of the original hedging relationship and the designation of a new hedging relationship that incorporates the desired changes.” As discussed in Sections 3.5.1.3, 4.1.5.1.3, and 5.4.3, a hedging relationship must be discontinued upon its dedesignation regardless of the type of hedging relationship (i.e., fair value hedge, cash flow hedge, or net investment hedge).

As noted above, ASC 815 does not provide specific guidance on determining whether a modification of a derivative’s terms is significant enough to be viewed as the termination of the original derivative and replacement with a new one. One reason for this lack of guidance could be that there is no need for such a distinction. A derivative within the scope of ASC 815 must be recognized on the balance sheet at fair value. If the modification of a derivative’s terms results in a change in its fair value and the counterparties do not exchange consideration for that change, the entity would generally recognize the change in earnings. If the derivative is not in a qualifying hedging relationship, all changes in fair value must be recognized in earnings. If the derivative is in a qualifying hedging relationship and the change is viewed as a change in a critical term of the derivative, the entity is required to dedesignate the hedging relationship under ASC 815-20-55-56. Accordingly, any change in the derivative’s value that results from the modification of terms would (1) not be attributed to the preexisting hedging relationship and (2) then be recognized in earnings.

The guidance does not explicitly address a modification of terms that is not deemed to be a change in a critical term of the derivative or hedging relationship. If the derivative is designated in a qualifying fair value hedging relationship, the hedged item would not have a corresponding change in fair value (or payment, if a payment was required to execute the modification), so the mechanics of fair value hedging would result in no offset for any change in the derivative’s fair value that must be recognized in earnings. If the derivative is designated in a qualifying cash flow hedge or net investment hedge and the entity determines that the hedging relationship was still highly effective (by considering the change in the derivative’s fair value or cash flows that is not offset by any change in the hedged cash flows or net investment in foreign operations), any change in fair value that was not offset by a payment for the modification would be recognized in OCI.

Connecting the Dots

Some believe that any modification of a derivative’s terms that affects its fair value is a change of a critical term of the derivative, which would result in the automatic dedesignation of any hedging relationship. Others believe that modifications that would affect the fair value of the derivative but do not result in changes in any of its settlement terms are not changes in the critical terms of the derivative or the hedging relationship; therefore, such modifications would not result in an automatic hedge dedesignation event. Examples of such modifications could be changes in collateral requirements or novations.

ASU 2016-05 added ASC 815-20-55-56A to clarify that derivative novations would not be considered a change in the critical terms of a hedging relationship (see the next section). We believe that an entity should carefully evaluate any other modifications (e.g., changes in collateral requirements) that would affect the fair value of the derivative but do not result in changes in any of its settlement terms before concluding that a change in the critical terms of the hedging relationship has not occurred. For example, if the modification resulted in a significant change in the derivative’s fair value, it would be difficult for the entity to conclude that the critical terms of the hedging relationship were not changed.

In addition, the FASB issued ASU 2021-01 in January 2021 to address the accounting for changes in interest rates used for discounting and for variation margin settlements and price alignment interest (PAI). See Section 8.3 for further discussion of ASU 2021-01.

3.5.1.1.2 Derivative Novations

ASC 815-20

55-56A For the purposes of applying the guidance in paragraph 815-20-55-56, a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a change in a critical term of the hedging relationship.

ASC 815-25

40-1A For the purposes of applying the guidance in paragraph 815-25-40-1, a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument.

ASC 815-30

40-1A For the purposes of applying the guidance in paragraph 815-30-40-1, a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument.

A novation of a derivative occurs when one of the counterparties to the derivative is replaced with another counterparty.

Example 3-14

TreyCo has an outstanding interest rate swap with Weekapaug Regional Bank, which assigns its rights and obligations under the swap to Makisupa Regional Bank. In this case, the interest rate swap was novated. Weekapaug would no longer recognize the interest rate swap on its balance sheet; the swap would instead be recognized on Makisupa’s balance sheet. However, TreyCo would continue to recognize the swap on its balance sheet.

Novations were not very common until the enactment of Dodd-Frank,5 which includes certain provisions that require entities to novate derivatives. If a novated derivative had previously been designated in a hedging relationship, it was not clear whether such a change in counterparties to the derivative would be deemed a change in the critical terms of the hedging relationship that would give rise to a requirement to dedesignate the relationship in accordance with ASC 815-20-55-56. As a result, the International Swaps and Derivatives Association (ISDA) consulted with the SEC’s Office of the Chief Accountant (OCA) about whether novations made in response to Dodd-Frank would result in a requirement to dedesignate hedging relationships that involve novated derivatives. In response, in a May 2012 letter to the ISDA, the OCA indicated that a required novation of a bilateral OTC derivative contract on the same financial terms would not have to be deemed a termination of the old derivative or a change in the critical terms of the hedging relationship. As long as other terms of the derivative were not changed, the existing hedging relationships could be continued.

Even after the OCA addressed novations resulting from the Dodd-Frank Act, it continued to receive questions related to the novation of a derivative in the following scenarios:

The reporting entity’s derivative counterparty merges with and into a surviving entity that assumes the same rights and obligations that existed under a preexisting derivative instrument of the merged entities.
The reporting entity’s derivative counterparty novates a derivative instrument to an entity under common control with the derivative counterparty.
At the inception of the hedging relationship, the reporting entity knows and contemporaneously documents that all or part of the derivative will be novated to a new counterparty during the hedging relationship.

At the 2014 AICPA Conference on Current SEC and PCAOB Developments, the OCA indicated that in any of the circumstances described above, it would not object if an entity continues its existing hedging relationship despite the derivative instrument’s novation provided that (1) no other critical terms of the derivative are changed and (2) the hedging relationship continues to be highly effective.

As a result of discussions by the EITF in 2015, the FASB issued ASU 2016-05 in March 2016. The ASU added ASC 815-20-55-56A, ASC 815-25-40-1A, and ASC 815-30-40-1A, which indicate that a change in the counterparty to a derivative instrument that has been designated in an existing hedging relationship would not, in and of itself, be considered either a termination of the derivative instrument or a change in a critical term of the hedging relationship.

3.5.1.2 Relationship No Longer Qualifies for Hedge Accounting

3.5.1.2.1 Hedging Relationship Not Highly Effective

ASC 815-25

Noncompliance With Effectiveness Criterion

40-3 In general, if a periodic assessment indicates noncompliance with the effectiveness criterion in paragraphs 815-20-25-75 through 25-80, an entity shall not recognize the adjustment of the carrying amount of the hedged item described in paragraphs 815-25-35-1 through 35-6 after the last date on which compliance with the effectiveness criterion was established.

40-4 However, if the event or change in circumstances that caused the hedging relationship to fail the effectiveness criterion can be identified, the entity shall recognize in earnings the changes in the hedged item’s fair value attributable to the risk being hedged that occurred before that event or change in circumstances.

As noted in ASC 815-25-40-1(a), hedge accounting should be discontinued for a fair value hedging relationship if any of the qualifying criteria for a fair value hedge are no longer met. The most common reason for needing to discontinue such a relationship under ASC 815-25-40-1(a) is that the hedge effectiveness assessment no longer supports an assertion that the hedging relationship is or is expected to be highly effective. However, while ASC 815-25-40-1(a) requires hedge accounting to be discontinued, as discussed in Section 2.5.1, we do not believe that a hedging relationship must be dedesignated upon a failed hedge effectiveness assessment because the effect of discontinuing hedge accounting is that it is not applied during the period in which the hedging relationship does not qualify for it. ASC 815-25-40-3 states, in part, that “an entity shall not recognize the adjustment of the carrying amount of the hedged item [in a fair value hedging relationship] after the last date on which compliance with the effectiveness criterion was established.”

If an entity’s retrospective hedge effectiveness assessment shows that a hedging relationship was not highly effective in the period just completed, the entity should consider whether there was a specific event or change in circumstances that caused the relationship to fail the effectiveness assessment. ASC 815-25-40-4 states, in part, that “if the event or change in circumstances that caused the hedging relationship to fail the effectiveness criterion can be identified, the entity shall recognize in earnings the changes in the hedged item’s fair value attributable to the risk being hedged that occurred before that event or change in circumstances.” In other words, if the hedging relationship was highly effective for a portion of the period before the specific event or change in circumstances occurred, it would be appropriate to apply hedge accounting to that portion.

If the hedging relationship is not dedesignated, hedge accounting may be applied in any subsequent period in which the entity can show that (1) it expects the hedging relationship to be highly effective at the beginning of the period (the prospective hedge effectiveness assessment) and (2) the hedge was highly effective during the period (the retrospective hedge effectiveness assessment). However, as noted in Section 2.5.1, if there are repeated failed hedge effectiveness assessments, the entity may want to consider whether a different hedging strategy would qualify for hedge accounting. Example 3-11 illustrates a fair value hedge of inventory that is discontinued but not dedesignated.

3.5.1.2.2 Hedged Item No Longer Meets Definition of Firm Commitment

ASC 815-25

Hedged Item No Longer Meets Definition of Firm Commitment

40-5 If a fair value hedge of a firm commitment is discontinued because the hedged item no longer meets the definition of a firm commitment, the entity shall do both of the following:

Derecognize any asset or liability previously recognized pursuant to paragraph 815-25-35-1(b) (because of an adjustment to the carrying amount for the firm commitment)
Recognize a corresponding loss or gain currently in earnings.

40-6 A pattern of discontinuing hedge accounting and derecognizing firm commitments would call into question the firmness of future hedged firm commitments and the entity’s accounting for future hedges of firm commitments.

The guidance in ASC 815-25-40-1(a) would also apply if the hedged item in a fair value hedge no longer qualifies to be the hedged item. This would be the case if the hedged item is an unrecognized firm commitment that no longer meets the definition of a firm commitment. In that case, as indicated by ASC 815-25-40-5, an entity must not only discontinue the application of hedge accounting but also derecognize in earnings the asset or liability that was recognized as an adjustment to the carrying amount of a previously qualifying fair value hedging relationship. In addition, a pattern of hedged firm commitments that no longer meet the definition of a firm commitment would call into question whether an entity could assert that the commitments it wanted to hedge would meet the definition of a firm commitment. Note that a commitment that was settled according to its terms is not considered a firm commitment that no longer meets the definition of a firm commitment.

3.5.1.2.3 Last-of-Layer Breach

ASC 815-25

40-8 For a hedging relationship designated under the last-of-layer method in accordance with paragraph 815-20-25-12A, an entity shall discontinue (or partially discontinue) hedge accounting in either of the following circumstances:

If the entity cannot support on a subsequent testing date that the hedged item (that is, the designated last of layer) is anticipated to be outstanding in accordance with paragraph 815-25-35-7A, it shall at a minimum discontinue hedge accounting for the portion of the hedged item no longer expected to be outstanding at the hedged item’s assumed maturity date.

b. If on a subsequent testing date the outstanding amount of the closed portfolio of prepayable financial assets or one or more beneficial interests is less than the hedged item, the entity shall discontinue hedge accounting.

Pending Content (Transition Guidance: ASC 815-20-65-6)

40-8 [See Section 9.7.]

40-9 If a last-of-layer method hedging relationship is discontinued (or partially discontinued), the outstanding basis adjustment (or portion thereof) as of the discontinuation date shall be allocated to the individual assets in the closed portfolio using a systematic and rational method. An entity shall amortize those amounts over a period that is consistent with the amortization of other discounts or premiums associated with the respective assets in accordance with other Topics (for example, Subtopic 310-20 on receivables–nonrefundable fees and other costs).

Pending Content (Transition Guidance: ASC 815-20-65-6)

40-9 [See Section 9.7.]

Last-of-layer hedging involves a partial-term fair value hedge of a portfolio of prepayable financial assets for changes in fair value that are attributable to changes in the designated benchmark interest rate, as discussed in Section 3.2.1.4. At each hedge effectiveness assessment date throughout the life of a last-of-layer hedge, an entity is required to support the expectation that the designated last of layer will be outstanding on the assumed maturity date. If the entity cannot support that assertion, in accordance with ASC 815-25-40-8(a), it is required to dedesignate the proportion of the hedge related to the portion of the last of layer that is not expected to be outstanding on the assumed maturity date. Proportional dedesignations are discussed in Section 3.5.1.3.1.

However, if, on an assessment date, the outstanding amount of the closed portfolio of a last-of-layer hedge is less than the designated last of layer (commonly referred to as a “breach” of the last of layer), the entity must dedesignate and discontinue the entire last-of-layer hedging relationship in accordance with ASC 815-25-40-8(b).

According to ASC 815-25-40-9, at the time of a partial or full discontinuance of a last-of-layer hedge, the outstanding portfolio-level basis adjustment “shall be allocated to the individual assets in the closed portfolio using a systematic and rational method.” As noted in Example 3-4, we believe that in the case of a breach of the last of layer, the portion of the basis adjustment related to the breached portion should be reversed through earnings since it is related to assets that no longer exist (e.g., sales, prepayments, or defaults). The basis adjustment that is allocated to the assets that still remain in the pool on the date of discontinuance would be amortized over “a period that is consistent with the amortization of other discounts or premiums associated with the respective assets.”

Changing Lanes

In March 2022, the FASB issued ASU 2022-01, which clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. ASU 2022-01 renames the “last-of-layer” method the “portfolio layer” method and addresses feedback from stakeholders regarding its application. ASU 2022-01 amends ASC 815-25-35-6 to clarify that in the event of an anticipated or actual breach of a hedged layer, an entity should discontinue hedge accounting for all or part of one or more hedging relationships related to the portfolio layer method hedge. In addition, in the event a breach has occurred, the portion of the basis adjustment related to the breached portion of the portfolio should be reclassified into interest income. See Chapter 9 for a more thorough discussion of ASU 2022-01.

3.5.1.3 Dedesignations

ASC 815-25-40-1(c) notes that fair value hedge accounting should be discontinued if an entity “removes the designation of the fair value hedge.” An entity may discontinue a hedging relationship at any time, even if the hedging instrument and the hedged item remain unchanged and are not sold, terminated, expired, or exercised. In some cases, an entity may dedesignate a hedging relationship to change its method of assessing hedge effectiveness (see Section 2.5.4), but in other cases, it may want to change the hedging relationship itself, such as in a dynamic hedging strategy (see Section 2.5.2.1.3). For example, the entity may want to deploy the hedging instrument in a different hedging relationship or simply may no longer want to apply hedge accounting to the relationship. The voluntary discontinuance of a hedging relationship is accomplished by (1) formally documenting the dedesignation of the relationship and then (2) discontinuing the application of hedge accounting to the dedesignated relationship on the date of the documentation.

Connecting the Dots

The concept of voluntarily dedesignating an existing hedging relationship has been a topic of deliberation by both the FASB and the International Accounting Standards Board (IASB®). While we further examine some of the differences between U.S. GAAP and IFRS Accounting Standards in Appendix A, this is one subject in which the standards are not converged. Under IFRS 9, an entity is not allowed to dedesignate a hedging relationship without either terminating the hedging derivative or entering into an offsetting derivative. When the FASB issued its June 2008 and May 2010 exposure drafts to amend hedge accounting, it proposed a model similar to IFRS 9. However, on the basis of comments received and further deliberations, the Board did not include such a requirement in its September 2016 exposure draft on targeted improvements to accounting for hedging activities, which was ultimately issued as ASU 2017-12. Instead, the ASU maintains an entity’s ability to voluntarily dedesignate a hedging relationship through documentation.

3.5.1.3.1 Proportional Dedesignations

If an entity wants to dedesignate part of a hedging relationship, rather than the entire relationship, it must make a proportional dedesignation in which it dedesignates the same proportion of both the hedging instrument and the hedged item. For example, if an entity is using a forward contract to sell 100 ounces of gold to hedge 100 ounces of gold inventory and decides to dedesignate 10 percent of the hedging relationship, it would dedesignate 10 percent of the forward contract (the notional amount related to 10 ounces) and 10 percent of the gold inventory (10 ounces) from the hedging relationship. After the dedesignation, the remaining hedging relationship would involve 90 percent of the outstanding forward contract hedging 90 ounces of gold inventory.

ASC 815-30-55-67 through 55-76 provide an example of a hedge of foreign currency risk related to forecasted royalty payments. In the example, the overall foreign currency exposure is related to the ultimate settlement of a quarterly payable that results from three different monthly royalty expenses. When each monthly royalty is incurred and the forecasted transaction becomes a recognized payable, the entity dedesignates a proportion of the derivative from the existing overall cash flow hedge and then can redesignate that proportion in a fair value hedge of the recognized payable. In Section 5.3.1.1.2, we discuss a foreign currency hedging strategy in which a forecasted transaction (e.g., the royalty expense) is hedged through the settlement date (e.g., the settlement of the payable) as a combination of a cash flow hedge (i.e., the forecasted transaction) followed by a fair value hedge (i.e., the recognized payable).

Another example of a required proportional dedesignation event is when an entity has an existing last-of-layer hedging relationship (see Section 3.2.1.4) and it no longer believes that the outstanding balance of the closed portfolio of assets will equal or exceed the designated last of layer through the assumed maturity date. Accordingly, under ASC 815-25-40-8(a), the entity should “at a minimum discontinue hedge accounting for the portion of the hedged item no longer expected to be outstanding at the hedged item’s assumed maturity date.”

An entity may not dedesignate a proportion of a derivative from the hedging relationship without also dedesignating the same proportion of the hedged item. In addition, an entity may not dedesignate a portion of a derivative and hedged item that is not expressed as a proportion of the original hedging relationship without a full dedesignation of the original hedging relationship and redesignation of a new hedging relationship. For example, if an entity wants to dedesignate the last two years of a hedging relationship that involves a five-year interest rate swap hedging a five-year fixed-rate debt instrument, it must dedesignate the entire five-year relationship and redesignate the new three-year relationship. Note that a portion of a derivative does not qualify as the hedging instrument in a hedging relationship, as discussed in Section 2.4.1.2.

Any dedesignation should be accomplished through contemporaneous documentation. A proportional dedesignation maintains the remaining proportion of the original hedging relationship (i.e., the proportion that has not been dedesignated) for the remainder of its term. If the hedging relationship met the conditions to apply hedge accounting up to the date of proportional dedesignation, hedge accounting would be applied to the entire hedging relationship up until that date.

After a dedesignation, an entity would only assess the remaining proportion of the hedging relationship to determine whether it qualifies for hedge accounting. In other words, the entity would compare only (1) the proportion of the changes in the derivative’s fair value that are related to the proportion that is still designated as the hedging instrument and included in the assessment of hedge effectiveness with (2) the changes in the fair value of the newly designated proportion of the hedged item that are attributable to changes in the designated risk. The proportion of the derivative that was dedesignated from the hedging relationship may be used as the designated hedging instrument in another qualifying hedging relationship.

The table below summarizes the treatment of the derivative and hedged item both before and after a proportional dedesignation of a fair value hedging relationship. It is assumed that the proportion of the derivative that was dedesignated is not designated in a new qualifying hedging relationship.

	Before Date of Dedesignation		After Date of Dedesignation
	Hedge Is Highly Effective	Hedge Is Not Highly Effective	Hedge Is Highly Effective	Hedge Is Not Highly Effective
Derivative	Remeasured at fair value through earnings6
Proportion of hedged item still designated	Carrying amount adjusted for changes in fair value attributable to hedged risk.	Carrying amount not adjusted.	Carrying amount adjusted for changes in fair value attributable to hedged risk.	Carrying amount not adjusted. See Sections 3.2.5 (financial) and 3.3.1 (nonfinancial) for treatment of basis adjustments.
Proportion of hedged item dedesignated			Carrying amount not adjusted. See Sections 3.2.5 (financial) and 3.3.1 (nonfinancial) for treatment of prior basis adjustments.

An entity could accomplish the same objective of a proportional dedesignation by dedesignating the entire hedging relationship and redesignating the portion of the hedging relationship that it intends to apply hedge accounting to; however, redesignating an existing derivative into a new hedging relationship would most likely involve an off-market derivative, which would affect the assessment of hedge effectiveness (see Section 2.5.2.1.4).

3.5.2 Accounting for a Discontinued Fair Value Hedge

Upon the discontinuation of hedge accounting for a fair value hedging relationship, the treatment of any remaining basis adjustments to the hedged item from the application of fair value hedge accounting until its discontinuation depends on the hedged item’s nature. If the hedged item is an interest-bearing financial instrument, cumulative adjustments to the carrying amount should be amortized to earnings “over a period that is consistent with the amortization of other discounts or premiums associated with the hedged item” in accordance with ASC 815-25-35-9A (see Section 3.2.5). If the hedged item is a nonfinancial asset or liability, the entity should account for the basis adjustments in the same manner as other components of the carrying amount of that asset or liability (see Section 3.3.1).

ASC 815-25

40-7 When applying the guidance in paragraph 815-20-25-83A, any amounts remaining in accumulated other comprehensive income associated with amounts excluded from the assessment of effectiveness shall be recorded in earnings in the current period if the hedged item is derecognized. For all other discontinued fair value hedges, any amounts associated with the excluded component remaining in accumulated other comprehensive income shall be recorded in earnings in the same manner as other components of the carrying amount of the hedged asset or liability in accordance with paragraphs 815-25-35-8 through 35-9A.

If a fair value hedge is discontinued early, any amounts associated with remaining components in AOCI that were excluded from the hedge effectiveness assessment should be reclassified into earnings in the same manner as other components of the hedged item’s carrying amount. For example, if an entity had designated a purchased put option in a fair value hedge of inventory for changes in overall price risk and had been excluding the option’s time value from the assessment of hedge effectiveness, any amounts in AOCI related to changes in the fair value of the time value that had not already been recognized in earnings would remain in AOCI until the inventory affected earnings (i.e., those amounts in AOCI would be reclassified into cost of sales when the inventory was sold or reclassified into impairment expense if the inventory was subsequently impaired).

Footnotes

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

If any component of the derivative is excluded from the assessment of hedge effectiveness and the difference between the changes in that component’s in fair value and the amount recognized in earnings under a systematic and rational method are recorded in OCI as permitted by ASC 815-20-25-83A, only the proportion of the derivative that is still in a hedging relationship qualifies for this treatment after the date of the proportional dedesignation. Amounts related to the proportion of the derivative that was dedesignated should remain in AOCI and be reclassified in earnings in a manner similar to the related basis adjustments on the hedged item, as discussed in this table (see Section 3.5.2).

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.