Chapter 6 — Presentation and Disclosures

6.6 Disclosures

The disclosure requirements of ASC 815 apply to all interim and annual reporting periods for which a balance sheet and income statement are presented. For the remainder of the discussion about disclosures, all references to qualifying hedging instruments include both derivatives and nonderivative instruments that are designated in qualifying hedging relationships. Since this Roadmap focuses on hedge accounting, it does not discuss the disclosure requirements in ASC 815-10-50-4J through 50-4L for entities that write credit derivatives. For information about the disclosure requirements related to fair value measurements, see Deloitte’s Roadmap Fair Value Measurements and Disclosures (Including the Fair Value Option).

ASC 815-10

50-4I If information on derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) is disclosed in more than a single note to financial statements, an entity shall cross-reference from the derivative instruments (or nonderivative instruments) note to other notes in which derivative-instrument-related information is disclosed.

Disclosures about derivatives and hedging activities are not required to be presented in a single footnote to the financial statements. However, ASC 815-10-50-4I notes that if the disclosures required by ASC 815-10-50 are made in more than one footnote, an entity should provide a cross-reference from the footnote regarding the derivative instruments (or nonderivative hedging instruments) to the other notes in which information about derivatives and hedging activities is disclosed.

6.6.1 Qualitative Disclosures About Objectives of Derivatives

ASC 815-10

General

50-1 An entity with derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) shall disclose information to enable users of the financial statements to understand all of the following:

How and why an entity uses derivative instruments (or such nonderivative instruments)
How derivative instruments (or such nonderivative instruments) and related hedged items are accounted for under Topic 815
How derivative instruments (or such nonderivative instruments) and related hedged items affect all of the following:
1. An entity’s financial position
2. An entity’s financial performance
3. An entity’s cash flows.

50-1A An entity that holds or issues derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) shall disclose all of the following for every annual and interim reporting period for which a statement of financial position and statement of financial performance are presented:

Its objectives for holding or issuing those instruments
The context needed to understand those objectives
Its strategies for achieving those objectives
Information that would enable users of its financial statements to understand the volume of its activity in those instruments.

50-1B For item (d) in paragraph 815-10-50-1A, an entity shall select the format and the specifics of disclosures relating to its volume of such activity that are most relevant and practicable for its individual facts and circumstances. Information about the instruments in items (a) through (c) in paragraph 815-10-50-1A shall be disclosed in the context of each instrument’s primary underlying risk exposure (for example, interest rate, credit, foreign exchange rate, interest rate and foreign exchange rate, or overall price). Further, those instruments shall be distinguished between those used for risk management purposes and those used for other purposes. Derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) used for risk management purposes include those designated as hedging instruments under Subtopic 815-20 as well as those used as economic hedges and for other purposes related to the entity’s risk exposures.

50-2 The instruments addressed by items (a) through (c) in paragraph 815-10-50-1A shall be distinguished between each of the following:

Derivative instruments (and nonderivative instruments as noted in items (1)(i) and (1)(iii) of this paragraph) used for risk management purposes, distinguished between each of the following:
1. Derivative instruments (and nonderivative instruments) designated as hedging instruments, distinguished between each of the following:
  1. Derivative instruments (and nonderivative instruments) designated as fair value hedging instruments
  2. Derivative instruments designated as cash flow hedging instruments
  3. Derivative instruments (and nonderivative instruments) designated as hedging instruments for hedges of the foreign currency exposure of a net investment in a foreign operation.
2. Derivative instruments used as economic hedges and for other purposes related to the entity’s risk exposures.
Derivative instruments used for other purposes.

50-3 If the simplified hedge accounting approach (see paragraphs 815-20-25-133 through 25-138) is applied in accounting for a qualifying receive-variable, pay-fixed interest rate swap, the settlement value of that swap may be used in place of fair value when disclosing the information required by this Section or in providing other fair value disclosures, such as those required under Topic 820 on fair value. For the purposes of complying with these disclosure requirements, amounts disclosed at settlement value will be subject to all of the same disclosure requirements as amounts disclosed at fair value. Any amounts disclosed at settlement value shall be clearly stated as such and disclosed separately from amounts disclosed at fair value.

50-4 For derivative instruments not designated as hedging instruments under Subtopic 815-20, the description shall indicate the purpose of the derivative activity.

50-5 Qualitative disclosures about an entity’s objectives and strategies for using derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) may be more meaningful if such objectives and strategies are described in the context of an entity’s overall risk exposures relating to all of the following:

Interest rate risk
Foreign exchange risk
Commodity price risk
Credit risk
Equity price risk.

Those additional qualitative disclosures, if made, should include a discussion of those exposures even though the entity does not manage some of those exposures by using derivative instruments. An entity is encouraged, but not required, to provide such additional qualitative disclosures about those risks and how they are managed.

50-5A The quantitative disclosures about derivative instruments may be more useful, and less likely to be perceived to be out of context or otherwise misunderstood, if similar information is disclosed about other financial instruments or nonfinancial assets and liabilities to which the derivative instruments are related by activity. Accordingly, in those situations, an entity is encouraged, but not required, to present a more complete picture of its activities by disclosing that information.

An entity with derivatives or nonderivative hedging instruments should disclose information to enable financial statement users to understand how and why it uses derivatives (including those nonderivative instruments designated as hedging instruments) in the context of its operations.

ASC 815-10-50-1 requires disclosures about the following:

How and why an entity uses derivative instruments (or . . . nonderivative [hedging] instruments)
How derivative instruments (or . . . nonderivative [hedging] instruments) and related hedged items are accounted for under Topic 815
How derivative instruments (or . . . nonderivative [hedging] instruments) and related hedged items affect all of the following:
1. An entity’s financial position [i.e., balance sheet]
2. An entity’s financial performance [i.e., comprehensive income statements]
3. An entity’s cash flows [i.e., cash flow statement].

In addition, ASC 815-10-50-1A requires an entity to describe in the footnotes the objectives, context, and strategies for holding or issuing derivatives or nonderivative hedging instruments. ASC 815-10-50-1B clarifies that this discussion should be “in the context of each instrument’s primary underlying risk exposure (for example, interest rate, credit, foreign exchange rate, interest rate and foreign exchange rate, or overall price).” Such disclosures should be broken down further between those used for “risk management purposes” and those used for other purposes. According to ASC 815-10-50-1B, instruments used for risk management purposes include both those designated in qualifying hedging relationships and “those used as economic hedges and for other purposes related to the entity’s risk exposures.”

As part of the disclosure about instruments used for risk management purposes, ASC 815-10-50-5 requires an entity to present a separate discussion about its objectives and strategies for using qualifying hedging instruments “in the context of [its] overall risk exposures relating to all of the following:

Interest rate risk
Foreign exchange risk
Commodity price risk
Credit risk
Equity price risk.”

ASC 815-10-50-5A encourages but does not require entities to disclose “similar information . . . about other financial instruments or nonfinancial assets and liabilities to which the [hedging] instruments are related by activity.”

ASC 815-10-50-2 notes that the disclosures required by ASC 815-10-50-1A(a)–(c) (i.e., related to the entity’s objectives for holding derivatives and strategies for achieving those objectives) should be provided separately on the basis of the entity’s purpose for holding the derivatives, broken down as follows:

Derivative instruments (and nonderivative [hedging] instruments . . . ) used for risk management purposes, distinguished between each of the following:
1. [Qualifying] hedging instruments, distinguished between each of the following:
  1. [Those] designated as fair value hedging instruments
  2. [Those] designated as cash flow hedging instruments
  3. [Those] designated as [hedges] of a net investment in a foreign operation.
2. Derivative instruments used as economic hedges and for other purposes related to the entity’s risk exposures.
Derivative instruments used for other purposes.

ASC 815-10-50-4 requires an entity to describe the purpose of any activities involving derivatives that are not designated in qualifying hedging relationships. SEC registrants should be mindful that if any metrics are reported related to economic hedging or other general risk management activities, they must consider the guidance in the SEC’s non-GAAP measure rules when making any adjustments. For further discussion of non-GAAP measures, see Deloitte’s Roadmap Non-GAAP Financial Measures and Metrics.

As indicated in ASC 815-10-50-3, if an entity is applying the simplified hedge accounting approach (see Sections 2.5.2.2.5 and 4.2.1.1.5), the swap’s settlement value may be used in place of its fair value for any required disclosures of fair value.

Example 20 in ASC 815-10-55-181, which is reproduced below, provides an illustration of these disclosures as well as the fair value hedge basis adjustment disclosures discussed in Section 6.6.2.1.3.

ASC 815-10

55-181 This Example illustrates the disclosure of objectives and strategies for using derivative instruments by underlying risk, including volume of activity (see paragraph 815-10-50-1A(d)). It also illustrates the fair value hedge basis adjustment disclosures in paragraphs 815-10-50-4EE through 50-4EEE.

The Entity is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk and interest rate risk. Forward contracts on various commodities are entered into to manage the price risk associated with forecasted purchases of materials used in the Entity’s manufacturing process. Interest rate swaps are entered into to manage interest rate risk associated with fixed-rate loans issued by the Entity’s financing subsidiary.

FASB ASC 815-10 requires that an entity recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with that Subtopic, the Entity designates commodity forward contracts as cash flow hedges of forecasted purchases of commodities and interest rate swaps as fair value hedges of fixed-rate receivables.

Cash Flow Hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. Gains and losses on the derivative instrument representing hedge components excluded from the assessment of effectiveness are recognized currently in earnings and are presented in the same line of the income statement expected for the hedged item.

As of December 31, 20X2, the Entity had the following outstanding commodity forward contracts that were entered into to hedge forecasted purchases:

Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. The Entity includes the gain or loss on the hedged items (that is, fixed-rate receivables) in the same line item — interest income — as the offsetting loss or gain on the related interest rate swaps.

As of December 31, 20X2, and 20X1, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges.

As of December 31, 20X2, and 20X1, the total notional amount of the Entity’s pay-fixed/receive-variable interest rate swaps was $79 and $82, respectively.

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

55-181 [See Section 9.7.]

6.6.2 Overall Quantitative Disclosures

ASC 815-10

50-4A An entity that holds or issues derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) shall disclose all of the following for every annual and interim reporting period for which a statement of financial position and statement of financial performance are presented:

The location and fair value amounts of derivative instruments (and such nonderivative instruments) reported in the statement of financial position
The location and amount of the gains and losses on derivative instruments (and such nonderivative instruments) and related hedged items reported in any of the following:
1. The statement of financial performance
2. The statement of financial position (for example, gains and losses initially recognized in other comprehensive income).
The total amount of each income and expense line item presented in the statement of financial performance in which the results of fair value or cash flow hedges are recorded.

Pending Content (Transition Guidance: 220-40-65-1)

The location and fair value amounts of derivative instruments (and such nonderivative instruments) reported in the statement of financial position
The location and amount of the gains and losses on derivative instruments (and such nonderivative instruments) and related hedged items reported in any of the following:
1. The statement of financial performance
2. The statement of financial position (for example, gains and losses initially recognized in other comprehensive income).
The total amount of each income and expense line item presented in the statement of financial performance in which the results of fair value or cash flow hedges are recorded.

See paragraphs 220-40-50-21 through 50-25 for additional disclosure requirements.

50-4E The quantitative disclosures required by paragraphs 815-10-50-4A through 50-4CCC shall be presented in tabular format. If a proportion of a derivative instrument is designated and qualifying as a hedging instrument and a proportion is not designated and qualifying as a hedging instrument, an entity shall allocate the related amounts to the appropriate categories within the disclosure tables. Example 21 (see paragraph 815-10-55-182) illustrates the disclosures described in paragraphs 815-10-50-4A through 50-4E.

ASC 815-10-50-4A establishes overall requirements for quantitative disclosure related to the impact of derivatives (and nonderivative hedging instruments) on an entity’s balance sheet, income statement, and statement of OCI. Each of these requirements is discussed in further detail in the next sections.

ASC 815-10-50-4E notes that the quantitative disclosures required in ASC 815-10-50-4A through 50-4CCC must “be presented in tabular format.” Many of the quantitative disclosures required by ASC 815 require entities to separate the presentation of derivatives designated in qualifying hedging relationships from the presentation of those that are not in qualifying hedging relationships. According to ASC 815-10-50-4E, “[i]f a proportion of a derivative instrument is designated and qualifying as a hedging instrument and a proportion is not designated and qualifying as a hedging instrument, an entity shall allocate the related amounts to the appropriate categories within the disclosure tables.” See Examples 6-5 and 6-6.

For quantitative disclosures about hedging instruments related to the balance sheet, only instruments that are in qualifying hedging relationships on the balance sheet date should be included as hedging instruments. For quantitative disclosures about hedging instruments related to the statements of financial performance, gains and losses that were recognized while the hedging instrument was in a qualifying hedging relationship should be included in qualifying hedging activities, even if those hedging relationships are no longer in place on the balance sheet date. Bifurcated embedded derivatives should be included in disclosures about derivative instruments.

Example 6-3

Hedging Instrument Only in Hedging Relationship for Portion of Period

At the beginning of a reporting period, Mercury Provisions issues variable-rate debt and contemporaneously enters into a pay-fixed, receive-variable interest rate swap to hedge the cash flow exposure created by the debt’s variable interest payments. Mercury designates the swap as a cash flow hedge at inception, and the swap meets all the criteria for hedge accounting. Later, during the same reporting period, Mercury decides to dedesignate the swap, thereby discontinuing the cash flow hedge. Before dedesignation, the swap’s fair value increased by $50, all of which was recorded in OCI. After dedesignation, during the remainder of the reporting period, the swap’s fair value increased by another $40 and Mercury recognized unrealized gains of $40 directly in earnings.

Because the interest rate swap was designated as the hedging instrument in a cash flow hedge for the first portion of the reporting period, the $50 unrealized gain recorded in OCI must be disclosed in Mercury’s tabular disclosures separately and apart from the $40 unrealized gain on the swap that was recognized after dedesignation of the cash flow hedge (i.e., when the interest rate swap was no longer designated as a hedging instrument). The $90 fair value of the derivative at the end of the reporting period should be attributed to a nonhedging derivative in the balance sheet disclosures because the hedging relationship is no longer active as of the reporting date.

Note that when a formerly designated hedge results in reclassification of AOCI into earnings in future periods (periods in which the hedge is not designated), an entity should include the amounts reclassified out of AOCI in its tabular disclosures of the gains/losses on the hedging derivative.

6.6.2.1 Quantitative Disclosures Related to the Balance Sheet

ASC 815-10

The location and fair value amounts of derivative instruments (and such nonderivative instruments) reported in the statement of financial position . . . .

50-4B The disclosures required by item (a) in the preceding paragraph shall comply with all of the following:

The fair value of derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) shall be presented on a gross basis, even when those instruments are subject to master netting arrangements and qualify for net presentation in the statement of financial position in accordance with Subtopic 210-20 or paragraphs 815-10-45-5 through 45-7, as applicable.
Cash collateral payables and receivables associated with those instruments shall not be added to or netted against the fair value amounts.
Fair value amounts shall be presented as separate asset and liability values segregated between each of the following:
1. Those instruments designated and qualifying as hedging instruments under Subtopic 815-20, presented separately by type of contract (for example, interest rate contracts, foreign exchange contracts, equity contracts, commodity contracts, credit contracts, other contracts, and so forth)
2. Those instruments not designated as hedging instruments, presented separately by type of contract.
The disclosure shall identify the line item(s) in the statement of financial position in which the fair value amounts for these categories of derivative instruments are included.

Amounts required to be reported for nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66 shall be the carrying value of the nonderivative hedging instrument, which includes the adjustment for the foreign currency transaction gain or loss on that instrument.

ASC 815-10-50-4A(a) requires an entity to provide a tabular disclosure of the location and fair value of derivative instruments and nonderivative hedging instruments reported on the balance sheet. ASC 815-10-50-40B provides more details on how to comply with ASC 815-10-50-4A(a) by clarifying the following items:

The fair value of derivatives and nonderivative hedging instruments should “be presented on a gross basis,” even if those amounts are offset with other derivative instruments in accordance with ASC 210-20 (see Section 6.6.2.1.1).
Payables and receivables related to cash collateral associated with derivatives should “not be added to or netted against the fair value amounts” (see Section 6.6.2.1.2).
Assets and liabilities should be presented separately, and the fair value amounts should be segregated between the following:
- Instruments that are designated in qualifying hedging relationships, “presented separately by type of contract (for example, interest rate contracts, foreign exchange contracts, equity contracts, commodity contracts, credit contracts, other contracts, and so forth).”
- Instruments that are not designated as hedging contracts, “presented separately by type of contract” (see above).
The disclosure should “identify the line item(s)” on the balance sheet in which the derivatives are included for each of these categories.
For nonderivative hedging instruments included in the tabular disclosures, entities should report the carrying value of the nonderivative instrument in accordance with ASC 830.

ASC 815-10-55-182 provides an illustrative example of the tabular disclosures required by ASC 815-10-50-4A. The portion of the illustration related to the balance sheet (as required by ASC 815-10-50-4A(a)) is reproduced below.

ASC 815-10

55-182 This Example illustrates the disclosure in tabular format of fair value amounts of derivative instruments and gains and losses on derivative instruments as required by paragraphs 815-10-50-4A through 50-4E:

. . .

6.6.2.1.1 Tabular Disclosure of Amounts That Are Offset in Accordance With ASC 210

If an entity elects to offset its derivative assets and liabilities in accordance with ASC 815-10-45-1 through 45-7 and ASC 210-20-45-1 through 45-5, it presents those derivative assets and liabilities on a net basis in the statement of financial position. As noted above, ASC 815-10-50-4B(a) requires entities to separately disclose the fair value of all derivative assets and liabilities on a gross basis, “even when [the derivative] instruments are subject to master netting arrangements and qualify for net presentation in the statement of financial position in accordance with Subtopic 210-20.” Accordingly, an entity may be required to show on the balance sheet (1) gross derivative asset balances that are reported as “contra” liabilities and (2) gross derivative liability balances that are included as “contra” assets.

Example 6-4

Derivatives Subject to Offset — Balance Sheet Line Item for Tabular Disclosure

Assume that TreyCo (1) has a portfolio of derivatives containing contracts that are in both asset and liability positions as of the reporting date and (2) has appropriately elected, in accordance with ASC 210-20, to present those contracts net in its statement of financial position as net liabilities within the line item for “derivative liabilities.” TreyCo must still present the gross derivative assets within that portfolio as “derivative liabilities” in the tabular disclosures. ASC 815-10-50-4B(d) requires such disclosures to “identify the line item(s) in the statement of financial position in which the fair value amounts for these categories of derivative instruments are included.”

In addition to providing the required disclosure identifying the “line item(s) in the statement of financial position in which the fair value amounts for these categories of derivative instruments are included,” an entity is permitted to provide supplemental disclosure regarding (1) the basis for its presentation in the tabular disclosures, (2) the nature of the relationship between the offsetting asset and liability derivative contracts, and (3) how those amounts are ultimately presented in the statement of financial position. (It is recommended that the entity provide such disclosure in a footnote to the table.)

The following is an example of what TreyCo could disclose to comply with requirements for the tabular disclosure of the fair values of derivative instruments in a statement of financial position, including disclosure of which instruments are subject to master netting arrangements and presented net in the statement of financial position:

6.6.2.1.2 Receivables or Payables Related to Cash Collateral From Derivatives

As discussed in Section 6.2.1.1.3, ASC 815-10-45-5 permits an entity to “offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instrument(s) recognized at fair value executed with the same counterparty under a master netting arrangement.” ASC 815-10-45-6 notes that a “reporting entity shall not offset fair value amounts recognized for derivative instruments without offsetting fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral.” Moreover, ASC 815-10-50-4B(b) states that “[c]ash collateral payables and receivables associated with [the derivative] instruments shall not be added to or netted against the fair value amounts.”

Although an entity is not permitted to net collateral payables or receivables against the fair values of its derivatives in the tabular disclosures, ASC 815-10-50 does not prohibit an entity from providing supplemental disclosure in its tabular presentations. Therefore, an entity may indicate — by adding a footnote to its tabular disclosure or providing separate columnar presentation or another similar presentation — the fair values of its collateral payables or receivables that are (1) offset against the fair values of its derivative assets and liabilities and (2) presented net in its statement of financial position. The entity should consistently apply this presentation to all similar derivative contracts and relationships. Also, any supplemental disclosure should clearly indicate how the related amounts are presented in the statement of financial position.

6.6.2.1.3 Basis Adjustments for Hedged Items in Fair Value Hedges

ASC 815-10

50-4EE An entity shall disclose in tabular format the following for items designated and qualifying as hedged items in fair value hedges:

The carrying amount of hedged assets and liabilities recognized in the statement of financial position. For an available-for-sale debt security, the amount disclosed is the amortized cost basis.
The cumulative amount of fair value hedging adjustments to hedged assets and liabilities included in the carrying amount of the hedged assets and liabilities recognized in the statement of financial position.
The line item in the statement of financial position that includes the hedged assets and liabilities.
The cumulative amount of fair value hedging adjustments remaining for any hedged assets and liabilities for which hedge accounting has been discontinued.

The disclosures required by (b) and (d) shall exclude cumulative basis adjustments related to foreign exchange risk.

50-4EEE For each line item disclosed in accordance with paragraph 815-10-50-4EE(c) that includes hedging relationships designated under the last-of-layer method in accordance with paragraph 815-20-25-12A, the following information shall be disclosed separately:

The amortized cost basis of the closed portfolio(s) of prepayable financial assets or the beneficial interest(s)
The amount that represents the hedged item(s) (that is, the designated last of layer)
The basis adjustment associated with the hedged item(s) (that is, the designated last of layer).

Example 20 (see paragraph 815-10-55-181) illustrates these disclosures.

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

50-4EEE [See Section 9.7.]

50-5B For hedging relationships designated under the last-of-layer method, an entity may need to allocate the outstanding basis adjustment to meet the objectives of disclosure requirements in other Topics. For purposes of those disclosure requirements, the entity may allocate the basis adjustment on an individual asset basis or on a portfolio basis using a systematic and rational method.

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

50-5B [See Section 9.7.]

ASC 815 also requires additional disclosures related to fair value hedging relationships. For example, under ASC 815-10-50-4EE, an entity must present a separate tabular disclosure to inform financial statement users about the following:

For assets and liabilities that are currently the hedged item in qualifying hedging relationships as of the balance sheet date:
- The carrying amount.
- The cumulative amount of basis adjustments.
- The locations (i.e., line items) of such amounts on the balance sheet.
The cumulative amount of remaining basis adjustments on assets and liabilities that were previously in fair value hedging relationships.

After the issuance of ASU 2017-12, the FASB staff clarified in a public Board meeting that the purpose of the fair value hedge basis adjustment disclosures is to provide financial statement users with the information they need to evaluate the amount, timing, and uncertainty of future cash flows associated with hedged assets or liabilities. Specifically, the disclosures required by the ASU were designed to provide financial statement users with additional information about fair value basis adjustments that will not affect future cash flows; therefore, basis adjustments that will affect future cash flows, such as foreign exchange risk basis adjustments, are excluded from these requirements. Thus, the ASU’s disclosure requirements would not apply to a fair value hedging relationship in which the sole hedged risk is the changes in fair value that are attributable to changes in a specified foreign currency exchange rate. In addition, the FASB staff indicated that for a hedged AFS debt security, the carrying amount that an entity should disclose should be its amortized cost basis and not its fair value. The Board agreed with both of these clarifications.

ASC 815-10-50-4EEE requires entities to provide additional disclosures about the basis adjustments related to last-of-layer hedging relationships (see Section 3.2.1.4). The following information must be disclosed separately:

The amortized cost basis of the hedged item (portfolio of assets or beneficial interest).
The designated last of layer.
The basis adjustment related to the hedged item.

ASC 815-10-50-5B notes that for such disclosures, an entity should use a systematic and rational method to allocate the portfolio-level basis adjustment arising from the last-of-layer hedging relationship to the individual items within that portfolio. Any method selected should be documented and consistently applied.

Example 20 in ASC 815-10-50-181 includes an illustration of these disclosures (see Section 6.6.1).

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. It also amends some of the presentation and disclosure requirements related to portfolio layer method basis adjustments. In addition, in the event a breach has occurred, the ASU requires the portion of the basis adjustment related to the breached portion of the portfolio to be reclassified into interest income. See Chapter 9 for a more thorough discussion of ASU 2022-01.

6.6.2.1.4 Derivatives With a Portion Classified as Current and a Portion Classified as Noncurrent

An entity may classify a portion of a derivative contract as current and a portion as noncurrent in its classified balance sheet (see Section 6.2.2). Under ASC 815-10-50-4A(a) and ASC 815-10-50-4B, the entity is required to identify the location of the fair value amounts included in the statement of financial position. Therefore, in the tabular disclosures required by those paragraphs, the entity should separately present the fair value amounts of the derivative that are related to (1) the portion classified as current and (2) the portion classified as noncurrent.

6.6.2.1.5 Derivatives With a Proportion Designated in a Qualifying Hedging Relationship

According to ASC 815-10-50-4E, “[i]f a proportion of a derivative instrument is designated and qualifying as a hedging instrument and a proportion is not designated and qualifying as a hedging instrument, an entity shall allocate the related amounts to the appropriate categories within the disclosure tables.”

Example 6-5

Proportion of a Derivative in a Qualifying Hedge — Balance Sheet Line Item for Tabular Disclosure

Reprise uses aluminum in its day-to-day operations. It has forecasted a purchase of two tons of aluminum on April 30, 20X8. On January 1, 20X7, Reprise enters into a derivative contract and designates 60 percent of that contract as a hedge of the variability in future cash flows attributable to changes in the forecasted purchase price of aluminum. The contract has a fair value of $0 at inception.

As of December 31, 20X7, the fair value of the entire derivative contract has increased by $100. As long as the hedging relationship is still deemed highly effective, the 60 percent of the gain ($60) that is attributable to the hedging portion of the derivative is recorded in OCI. Reprise records the remaining 40 percent of the gain ($40) that is attributable to the proportion of the derivative that is not a designated and qualifying hedging instrument directly in earnings.

As of April 1, 20X8, the fair value of the entire derivative contract has increased by another $60. As long as the hedging relationship is still deemed highly effective, the 60 percent of the gain ($36) that is attributable to the hedging portion of the derivative is recorded in OCI because the forecasted transaction has not yet affected earnings. Reprise records the remaining 40 percent of the gain ($24) that is attributable to the proportion of the derivative that is not a designated and qualifying hedging instrument directly in earnings.

On April 30, 20X8, Reprise purchases two tons of aluminum, and on May 4, 20X8, it sells its aluminum-based products to consumers. Upon the sale of the aluminum-based products, in accordance with ASC 815-30-35-38, Reprise reclassifies the amounts recorded in AOCI into earnings and presents them in the same income statement line item as the earnings effect of the hedged item (aluminum), or cost of sales in this example. Cost of sales, as reported on the face of the statement of financial performance, is $500 for the year ended December 31, 20X8.

Below is an example of a tabular disclosure that Reprise could provide to reflect amounts related to this derivative in accordance with ASC 815-10-50-40A(a). See Example 6-6 for an illustration of the tabular disclosure that Reprise could provide to reflect amounts related to this derivative in the statement of financial performance.

6.6.2.2 Quantitative Disclosures Related to Statements of Financial Performance

ASC 815-10

b. The location and amount of the gains and losses on derivative instruments (and such nonderivative instruments) and related hedged items reported in any of the following:

1. The statement of financial performance

2. The statement of financial position (for example, gains and losses initially recognized in other comprehensive income).

c. The total amount of each income and expense line item presented in the statement of financial performance in which the results of fair value or cash flow hedges are recorded.

50-4C For qualifying fair value and cash flow hedges, the gains and losses disclosed pursuant to paragraph 815-10-50-4A(b) shall be presented separately for all of the following by type of contract (as discussed in paragraph 815-10-50-4D) and by income and expense line item (if applicable):

a. Derivative instruments (and nonderivative instruments) designated and qualifying as hedging instruments in fair value hedges and related hedged items designated and qualifying in fair value hedges.

b. The gains and losses on derivative instruments designated and qualifying in cash flow hedges included in the assessment of effectiveness that were recognized in other comprehensive income during the current period.

bb. Amounts excluded from the assessment of effectiveness that were recognized in other comprehensive income during the period for which an amortization approach is applied in accordance with paragraph 815-20-25-83A.

c. The gains and losses on derivative instruments designated and qualifying in cash flow hedges that are included in the assessment of effectiveness and recorded in accumulated other comprehensive income during the term of the hedging relationship and reclassified into earnings during the current period.

d. The portion of gains and losses on derivative instruments designated and qualifying in fair value and cash flow hedges representing the amount, if any, excluded from the assessment of hedge effectiveness that is recognized in earnings. When disclosing this amount, an entity shall disclose separately amounts that are recognized in earnings through an amortization approach in accordance with paragraph 815-20-25-83A and amounts recognized through changes in fair value in earnings in accordance with paragraph 815-20-25-83B.

1. Subparagraph superseded by Accounting Standards Update No. 2017-12.

2. Subparagraph superseded by Accounting Standards Update No. 2017-12.

e. Subparagraph superseded by Accounting Standards Update No. 2017-12.

f. The gains and losses reclassified into earnings as a result of the discontinuance of cash flow hedges because it is probable that the original forecasted transactions will not occur by the end of the originally specified time period or within the additional period of time discussed in paragraphs 815-30-40-4 through 40-5.

g. The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge.

50-4CC An entity shall present separately by type of contract (as discussed in paragraph 815-10-50-4D) the gains and losses disclosed in accordance with paragraph 815-10-50-4A(b) for derivative instruments not designated or qualifying as hedging instruments under Topic 815 (see paragraph 815-10-50-4F).

50-4CCC For qualifying net investment hedges, an entity shall present the gains and losses disclosed in accordance with paragraph 815-10-50-4A(b) separately for all of the following by type of contract (as discussed in paragraph 815-10-50-4D):

The gains and losses on derivative instruments (and nonderivative instruments) designated and qualifying in net investment hedges that were recognized in the cumulative translation adjustment section of other comprehensive income during the current period
The gains and losses on derivative instruments (and nonderivative instruments) designated and qualifying in net investment hedges recorded in the cumulative translation adjustment section of accumulated other comprehensive income during the term of the hedging relationship and reclassified into earnings during the current period
The portion of gains and losses on derivative instruments (and nonderivative instruments) designated and qualifying in net investment hedges representing the amount, if any, excluded from the assessment of hedge effectiveness.

50-4D Disclosures pursuant to paragraphs 815-10-50-4C through 50-4CCC shall both:

Be presented separately by type of contract, for example:
1. Interest rate contracts
2. Foreign exchange contracts
3. Equity contracts
4. Commodity contracts
5. Credit contracts
6. Other contracts.
Identify the line item(s) in the statement of financial performance in which the gains and losses for these categories of derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) are included.

ASC 815-10-50-4A(b) requires an entity to provide a tabular disclosure of the locations and amounts of gains and losses on qualifying hedging instruments and related hedged items in the statement of financial performance, including those amounts that are recognized in OCI in the current period. ASC 815-10-50-40A(c) requires those gains and losses to be further disaggregated into amounts resulting from qualifying fair value hedging relationships and amounts resulting from cash flow hedging relationships.

ASC 815-10-50-4C breaks down the disclosure requirements into further detail. It requires entities to separately disclose the following amounts in the footnotes and to show how each amount affected the related income and expense line item in the statement of operations:

Gains and losses on qualifying hedging instruments and related hedged items designated in fair value hedging relationships.
Gains and losses recognized in OCI for qualifying hedging instruments designated in cash flow hedging relationships.
Amounts recognized in OCI related to excluded components if the entity elected to amortize the initial value into earnings.
Amounts reclassified out of AOCI if the forecasted transactions in a cash flow hedging relationship affected earnings.
Amounts recognized in earnings related to excluded components broken down between:
- Amounts recognized in earnings under an amortization approach.
- Amounts recognized in earnings under the change in fair value approach.
Amounts that were reclassified out of AOCI because it was probable that the forecasted transaction would not occur by the end of the originally specified time period or within the allowable additional time period.
Gains and losses that were recognized when a hedged firm commitment no longer qualified as a fair value hedge.

ASC 815-10-50-4CC requires entities to separately disclose gains and losses on derivatives that were not designated in qualifying hedging relationships.

In addition, ASC 815-10-50-4CCC requires entities to disclose the impact of qualifying net investment hedging relationships on the statements of financial performance. Entities must provide the following information related to net investment hedges:

Gains and losses recognized in CTA.
Gains and losses reclassified out of CTA and into earnings.
Gains and losses related to excluded components.

According to ASC 815-10-50-4D, all of the disclosures required by ASC 815-10-50-4C through 50-4CCC must “be presented separately by type of contract, for example:

Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit contracts
Other contracts.”

Entities should also identify the appropriate line item in the statements of financial performance for each of the above amounts.

ASC 815-10-55-182 provides an illustrative example of the tabular disclosures required by ASC 815-10-50-4A. The portion of the example related to the statements of financial performance (those required by ASC 815-10-50-4A(b) and (c)) is reproduced below.

ASC 815-10

6.6.2.2.1 Derivatives With a Proportion Designated in a Qualifying Hedging Relationship

Example 6-6

Proportion of Derivative in Qualifying Hedge — Statements of Financial Performance Tabular Disclosures

On April 30, 20X8, Reprise purchases two tons of aluminum, and on May 4, 20X8, it sells its aluminum-based products to consumers. Upon the sale of the aluminum-based products, in accordance with ASC 815-30-35-38, Reprise will reclassify the amounts recorded in AOCI into earnings and present such amounts in the same income statement line item as the earnings effect of the hedged item (aluminum), or cost of sales in this example. Cost of sales, as reported on the face of the statement of financial performance, is $500 for the year ended December 31, 20X8.

Below is an example of tabular disclosures that Reprise could provide to reflect the effect of hedge accounting on the statements of financial performance in accordance with ASC 815-10-50-40A(b) and (c). See Example 6-5 for an illustration of the tabular disclosure that Reprise could provide to reflect amounts related to this derivative in the balance sheet.

6.6.2.2.2 Trading Derivatives

ASC 815-10

50-4F For derivative instruments that are not designated or qualifying as hedging instruments under Subtopic 815-20, if an entity’s policy is to include those derivative instruments in its trading activities (for example, as part of its trading portfolio that includes both derivative instruments and nonderivative or cash instruments), the entity can elect to not separately disclose gains and losses as required by paragraph 815-10-50-4CC provided that the entity discloses all of the following:

The gains and losses on its trading activities (including both derivative instruments and nonderivative instruments) recognized in the statement of financial performance, separately by major types of items, for example:
1. Fixed income/interest rates
2. Foreign exchange
3. Equity
4. Commodity
5. Credit.
The line items in the statement of financial performance in which trading activities gains and losses are included
A description of the nature of its trading activities and related risks, and how the entity manages those risks.

If the disclosure option in this paragraph is elected, the entity shall include a footnote in the required tables referencing the use of alternative disclosures for trading activities. Example 21 (see paragraph 815-10-55-182) illustrates a footnote referencing the use of alternative disclosures for trading activities. Example 22 (see paragraph 815-10-55-184) illustrates the disclosure of the information required in items (a) and (b).

If an entity has a policy of including derivative instruments that are not in qualifying hedging relationships in its trading activities, it may elect to exclude such “trading derivatives” from its tabular disclosures about gains and losses required by ASC 815-10-50-4CC. However, if the entity elects to exclude trading derivatives, it should:

Include a footnote in the tabular disclosures that references this election for trading activities.
Present a description of (1) its trading activities and related risks and (2) how the entity manages those risks.
Disclose the gains and losses on its trading activities (including both derivatives and nonderivatives) separately by major types of items. As noted above, ASC 815-10-50-4F provides the following examples of major types of items:
1. Fixed income/interest rates
2. Foreign exchange
3. Equity
4. Commodity
5. Credit.

However, if the derivative instruments are not held for trading purposes, an entity may not elect to exclude such instruments from the tabular disclosures required by ASC 815-10-50-4CC solely because they are not designated in qualifying hedging relationships. For an entity to elect to provide alternative disclosures for trading derivatives, its use of the derivatives must meet the definition of trading in U.S. GAAP. The ASC master glossary defines trading as follows:

An activity involving securities sold in the near term and held for only a short period of time. The term trading contemplates a holding period generally measured in hours and days rather than months or years. See paragraph 948-310-40-1 for clarification of the term trading for a mortgage banking entity.

Example 22 in ASC 815-10-55-184, which is reproduced below, provides an illustration of quantitative disclosures related to trading activities.

ASC 815-10

55-184 This Example illustrates one approach for presenting the quantitative information required under paragraph 815-10-50-4F when an entity elects the alternative disclosure for gains and losses on derivative instruments included in its trading activities. The Example does not address all possible ways of complying with the alternative disclosure requirements under that paragraph. Many entities already include the required information about their trading activities in other disclosures within the financial statements. Paragraph 815-10-50-4I states that, if information on derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) is disclosed in more than a single note to financial statements, an entity shall cross-reference from the derivative instruments (or nonderivative instruments) note to other notes in which derivative-instrument-related information is disclosed.

The revenue related to each category includes realized and unrealized gains and losses on both derivative instruments and nonderivative instruments.

6.6.2.2.3 Not-for-Profit Entities

ASC 815-10

50-4G For purposes of the disclosure requirements beginning in paragraph 815-10-50-4A, not-for-profit entities within the scope of Topic 954 should present a similarly formatted table. Those entities shall refer to amounts within their performance indicator, instead of in income, and amounts outside their performance indicator, instead of in other comprehensive income. Not-for-profit entities not within the scope of Topic 954 shall disclose the gain or loss recognized in changes in net assets using a similar format. All not-for-profit entities also would indicate which class or classes of net assets (without donor restrictions or with donor restrictions) are affected.

Under ASC 815-10-50-4G, not-for-profit entities within the scope of ASC 954 are required to present tabular disclosures related to the impact of derivatives and hedging activities in tables that are formatted similarly to those discussed above, even if those entities do not present statements of income and OCI. In such disclosures, the term “income” should be replaced by the entity’s “performance indicator” and the term “other comprehensive income” should be replaced by “outside [of the] performance indicator.”

If a not-for-profit entity (NFP) is not within the scope of ASC 954, it should present the gain or loss recognized in changes in net assets in a similar format and indicate which class or classes of net assets are affected.

6.6.3 Liquidity Risk Disclosures

6.6.3.1 Credit-Risk-Related Contingent Features

ASC 815-10

50-4H An entity that holds or issues derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 815-20-25-58 and 815-20-25-66) shall disclose all of the following for every annual and interim reporting period for which a statement of financial position is presented:

The existence and nature of credit-risk-related contingent features
The circumstances in which credit-risk-related contingent features could be triggered in derivative instruments (or such nonderivative instruments) that are in a net liability position at the end of the reporting period
The aggregate fair value amounts of derivative instruments (or such nonderivative instruments) that contain credit-risk-related contingent features that are in a net liability position at the end of the reporting period
The aggregate fair value of assets that are already posted as collateral at the end of the reporting period
The aggregate fair value of additional assets that would be required to be posted as collateral if the credit-risk-related contingent features were triggered at the end of the reporting period
The aggregate fair value of assets needed to settle the instrument immediately if the credit-risk-related contingent features were triggered at the end of the reporting period.

The annual and interim disclosures required by ASC 815-10-50-4H are designed to highlight liquidity risk associated with derivative liabilities that are not fully collateralized, particularly the potential for collateral calls or immediate settlement. The disclosures are focused on derivative liabilities because, as a result of triggering events, an entity may be required deliver cash or other assets as collateral or to settle such contracts early. Some refer to the ASC 815-10-50-4H disclosures as “run on the bank” disclosures. More commonly, they are referred to as “liquidity risk disclosures.”

6.6.3.1.1 Identification of Net Derivative Liabilities Subject to Liquidity Risk Disclosures

Entities may find it useful to perform the steps below when determining which contracts are subject to the disclosure requirements in ASC 815-10-50-4H (note that steps 2 and 3 can be reversed if desired).

6.6.3.1.1.1 Step 1 — Identify All Derivative Liabilities Recognized at Fair Value

An entity performs this step on a gross basis at the contract level (i.e., it does not offset a liability against an asset in accordance with ASC 815-10-45-1 through 45-8 or other portfolio approach). The remaining population of contracts should be consistent with the derivative liabilities disclosed under ASC 815-10-50-4A and 50-4B (see Section 6.6.2.1).

6.6.3.1.1.2 Step 2 — Identify the Subset of Derivative Liabilities That Are Fully Collateralized

On the basis of discussions with the FASB staff, we understand that the scope of ASC 815-10-50-4H encompasses any derivative liabilities (with credit-risk-related contingent features) that (1) are accounted for at fair value under ASC 815 and (2) are not fully collateralized as of the balance sheet date and therefore represent a liquidity exposure to the entity. Note that a fully collateralized derivative, by contrast, represents a derivative liability (from the reporting entity’s perspective) for which the reporting entity has posted sufficient collateral as of the balance sheet date to avoid any additional payments upon an early settlement of the contract (for this purpose, early settlement is presumed to occur as of the balance sheet date on the basis of the derivative’s GAAP fair value unless the contract explicitly refers to another early settlement calculation). In other words, a derivative liability is considered fully collateralized only if it is effectively “prepaid” (through the collateral), which would eliminate any additional liquidity exposure to the entity as of the balance sheet date.

The term “collateral” refers to assets provided to, or legally restricted for the benefit of, a counterparty in support of an obligation; to be considered collateral for a derivative liability, the assets must be contractually linked to the derivative. Entities should not consider letters of credit (LCs) posted with the counterparty to be assets posted as collateral (see Section 6.6.3.1.1.4 for further discussion of LCs). In addition, when determining whether a derivative liability is fully collateralized, an entity should not consider (1) derivative assets recognized at fair value, (2) contracts subject to the normal purchases and normal sales scope exception in ASC 815-10-15-13, or (3) receivables, or other items that are subject to the same master netting arrangement as the derivative liability. These amounts (whether related to open positions or receivables) arise on the basis of separate transactions between the parties, whereas collateral arises on the basis of terms and conditions within a specific contract or master netting arrangement.

When an entity is determining whether a derivative liability is fully collateralized, it is acceptable to adopt a consistent approach in which the entity defines collateral as cash (in the same currency as the derivative’s settlement) and thus only considers a derivative liability fully collateralized when it is fully collateralized with cash. This approach is consistent with the principle that the derivative liability must effectively be prepaid (with no additional liquidity exposure) as of the balance sheet date. Cash provided to a counterparty is different from other forms of collateral in that it carries no collection risk and is not subject to fluctuations in value (as opposed to land, for example).

Note that for derivative liquidity disclosures, entities should not think of “net” in the context of ASC 815-10-45-1 through 45-7 or ASC 210-20-45-1 through 45-53 (see Section 6.2.1). The meaning of the term “net liability position,” as used in the ASC 815-10-50-4H disclosure requirements, differs from how a net derivative asset or liability may be determined under ASC 815-10-45-1 through 45-7 and ASC 210-20-45-1 through 45-5. More specifically, under a master netting arrangement with a single counterparty, an entity may have both derivative asset and derivative liability contracts that, upon satisfaction of the criteria in ASC 815-10-45-1 through 45-7 and ASC 210-20-45-1 through 45-5, may be offset and presented as a single net asset in the entity’s balance sheet. Despite presentation as a net asset, however, each individual derivative liability within that master netting arrangement that has a credit-risk-related contingent feature would be subject to the ASC 815-10-50-4H disclosures unless the liability was fully collateralized.

Example 6-7

Derivative Not Fully Collateralized

Mercury Provisions has a forward to purchase titanium that is a liability with a fair value of $100 as of the balance sheet date. It has posted collateral of $75, and if an early settlement occurs on the balance sheet date, it would be required to pay an additional $25 to the counterparty. In this example, the derivative is not fully collateralized because Mercury would need to make an additional payment upon early settlement.

After the contracts identified in step 2 are eliminated (i.e., step 1 population less step 2 subset), the remaining subset of derivative contracts represents all derivative instruments considered to be in a net liability position for the ASC 815-10-50-4H disclosures (i.e., derivative liability contracts that are not fully collateralized).

6.6.3.1.1.3 Step 3 — Identify Remaining Subset of Derivative Contracts Containing Credit-Risk-Related Contingent Features

From the remaining contracts (derivative instruments in a net liability position), the entity identifies the subset of derivative contracts that contains one or more credit-risk-related contingent features. When assessing whether individual features represent credit-risk-related contingent features that must be disclosed under ASC 815-10-50-4H, an entity should consider the following guidelines, which were developed on the basis of discussions with the FASB staff:

Disclosure is not limited to features that trigger cash payments. Although ASC 815-10-50-4H generally focuses on liquidity exposure, the guidance encompasses any feature that would require the use of an entity’s “assets.”
The feature could reside in a contract or governing arrangement (e.g., master netting arrangement). Many derivatives are executed under standard legal arrangements (e.g., ISDA agreements) that establish key terms and conditions and often provide for netting among the counterparties in certain situations. In such cases, the “master” arrangement typically serves as an umbrella governing each executed derivative, and it is therefore necessary to look to the master arrangement for contingent features. In these situations, the features within the master arrangement would be ascribed to the individual contracts covered by the arrangement. In other cases, a derivative contract may be a stand-alone legal instrument and any related contingent features would reside within the derivative contract itself.
The feature must be objective. More specifically, the feature must reference one or more specific contingent events and describe what the specific payment terms would be if the contingent event were to occur. For example, a feature requiring an entity to post $XX or XX percent of contract value with the counterparty if the entity’s credit rating drops below investment grade would be considered an objective feature. Material adverse-change clauses may or may not be objective. “General adequate assurance”1 clauses, which give each party in an arrangement the right to seek additional collateral if deemed necessary (but not on the basis of a specified credit event) are not considered objective, although entities are encouraged to provide supplemental disclosure about the existence of these types of provisions.
The feature should be directly related to credit events or measures of creditworthiness. Collateral requirements that are based solely on either (1) market indexes (e.g., interest rates or commodity prices) or (2) the fair value of a derivative or a portfolio would generally not be considered credit-risk-related contingent features since they are not driven by discrete credit events. Likewise, although many operational events affect credit, contingencies driven by operations generally are not considered credit-risk-related contingent features. Accordingly, events such as a decline in revenues or a loss of a major customer would not be considered credit-risk-related contingent features that must be disclosed under ASC 815-10-50-4H. However, contingencies that are based on an entity’s failure to maintain specified liquidity ratios (e.g., current ratio or quick ratio) or financial leverage ratios (e.g., debt ratio or debt-to-equity ratio) would generally be considered credit-risk-related contingent features.
Default provisions do not constitute credit-risk-related contingent features. Default provisions are triggered by an entity’s failure to perform under a particular contract. Contingent features, on the other hand, are generally related to factors or events that are external to the contract (e.g., a decline in a credit rating or a failure to maintain a minimum current ratio) and require incremental performance (e.g., posting of collateral) by one party or the other. Although some default events are ostensibly credit-driven, it is not necessary to identify credit-specific default provisions (e.g., payment delinquency or deficiency) and treat those events as credit-risk-related contingent features.
Cross-default provisions require special consideration. Unlike the default provisions discussed in guideline 5 above, cross-default provisions are related to factors that are external to an entity’s performance under the contract in question; accordingly, an entity must carefully consider the terms and conditions of such provisions to determine whether they are within the scope of ASC 815-10-50-4H. In some circumstances, a cross-default provision may constitute a credit-risk-related contingent feature (e.g., when a failure to make a required interest or principal payment on a debt instrument triggers a collateral call or early settlement of a derivative liability). In this case, the failure to make a required interest or principal payment could be viewed as a credit event. By contrast, a cross-default provision that is based on a failure to deliver goods under a commodity sales contract could be triggered by factors other than credit.
Bankruptcy and liquidation events do not constitute credit-risk-related contingent features.2 If payment is required only upon bankruptcy or final liquidation of the company, those features would not be considered credit-risk-related contingent features that must be disclosed under ASC 815-10-50-4H.

The following examples illustrate the application of the above guidelines to specific features that may exist in derivative contracts:

Features That Would Represent Credit-Risk-Related Contingent Features	Features That Would Not Represent Credit-Risk-Related Contingent Features
A requirement to post a discrete amount of collateral upon the occurrence of a credit rating downgrade. The discrete amount could be expressed as either a dollar amount or a percentage of the contract’s fair value.	A material adverse change clause that allows an entity to seek “performance assurance” in an amount determined in a commercially reasonable manner if and when the counterparty experiences a change in condition (financial or otherwise) that can be reasonably expected to impair the counterparty’s ability to fulfill its obligations.
A requirement to post a discrete amount of collateral if a defined financial leverage ratio (e.g., debt-to-equity ratio) falls below an established threshold. The discrete amount could be expressed as either a dollar amount or a percentage of the contract’s fair value.	A requirement to settle a contract immediately upon a company’s default under the contract in question. This would include any default event under the contract in question, including failure to pay when payment is due.
A requirement to settle a contract immediately upon the occurrence of a credit rating downgrade.	A requirement to settle a contract immediately upon the occurrence of a bankruptcy or liquidation event.
A requirement to settle a contract immediately if a defined financial leverage ratio (e.g., debt-to-equity ratio) falls below an established threshold.	A requirement to post a discrete amount of collateral if sales in a given quarter fall short of published projections.

6.6.3.1.1.4 Letters of Credit Are Not Collateral

The credit enhancement requirements in many derivatives can be satisfied by traditional collateral or standby LCs. A typical LC is issued by a financial institution and authorizes the beneficiary of the LC to draw specified amounts of cash upon the occurrence of specified events (e.g., an event of default under the related derivative by the posting party). Some contractual arrangements require the posting of an LC with the counterparty at inception, while others provide for ongoing collateral requirements that can be satisfied by cash or LC and are triggered by events after inception (e.g., the credit rating is downgraded or the fair value exposure threshold is exceeded). In either case, the LC effectively represents a “guarantee” from the issuing financial institution of the payment obligations of the posting party. LCs represent a backstop mechanism in case the posting party cannot pay and, therefore, it is not necessarily expected that the LC beneficiary will ever draw upon the LC. If the LC beneficiary does draw upon the LC, the posting party has an obligation to repay the issuing financial institution; in other words, the posting party continues to have an obligation but the previous derivative obligation (to the derivative counterparty) is replaced with a debt obligation (to the issuing financial institution).

As described above, LCs are often provided or “posted” to derivative counterparties in lieu of collateral. Many entities negotiate LC facilities with financial institutions to provide ready access to LCs to support derivative transactions. Such facilities generally allow the entity to post LCs for the benefit of yet-to-be-identified derivative counterparties in amounts determined by the issuing entity and without incremental approval from the financial institution after inception. These facilities require commitment fees and function similarly to lines of credit in the sense that they establish a borrowing or “posting” cap and provide for the revolving use of available capacity under the arrangement for a defined period.

Although paragraph A44 of the Background Information and Basis for Conclusions of FASB Statement 161 refers to “immediate payment” requirements to a counterparty, the fundamental purpose of the disclosures is to highlight the liquidity risk associated with derivatives. Liquidity risk is not solely a function of immediate exposure; therefore, arrangements such as LCs that allow an entity to delay its payment obligations under a derivative do not remove the related derivatives from the scope of the ASC 815-10-50-4H credit-risk disclosures.

The above guidance applies regardless of whether unused LC capacity creates the potential to use available LCs in lieu of collateral upon the occurrence of a credit-risk-related contingency. While available LCs do not affect the scope of the ASC 815-10-50-4H disclosures, entities are encouraged to describe their ability to use available capacity under LC facilities to satisfy collateral calls when preparing disclosures under ASC 815-10-50-4H(d)–(f), and it is important that entities highlight this ability so that they can properly portray their true liquidity exposure related to derivative liabilities. In connection with this disclosure, entities should (1) indicate the remaining borrowing or posting capacity under LC facilities, (2) describe the repayment terms if an LC is drawn by the derivative counterparty and an obligation to the issuing financial institution is created, and (3) consider the need to provide cross-references to other footnote disclosures, such as the debt footnote, in which LC information resides. In describing unused LC capacity, entities should consider any factors that would limit the use of such capacity to support derivative liabilities. Such factors may include contractual or legal restrictions, other financing needs, and management intent.

6.6.3.1.2 Liquidity Risk Disclosure Requirements

ASC 815-10

The existence and nature of credit-risk-related contingent features
The circumstances in which credit-risk-related contingent features could be triggered in derivative instruments (or such nonderivative instruments) that are in a net liability position at the end of the reporting period
The aggregate fair value amounts of derivative instruments (or such nonderivative instruments) that contain credit-risk-related contingent features that are in a net liability position at the end of the reporting period
The aggregate fair value of assets that are already posted as collateral at the end of the reporting period
The aggregate fair value of additional assets that would be required to be posted as collateral if the credit-risk-related contingent features were triggered at the end of the reporting period
The aggregate fair value of assets needed to settle the instrument immediately if the credit-risk-related contingent features were triggered at the end of the reporting period.

Once the population of derivative liabilities subject to the liquidity risk disclosures required in ASC 815-10-50-4H is identified (see Section 6.6.3.1.1), the preparation of the disclosure is largely an aggregation exercise. For example, the ASC 815-10-50-4H(a) and (b) disclosures would describe the different types of credit-risk-related contingent features that exist within the individual derivative liabilities identified.

Likewise, under the ASC 815-10-50-4H(c) disclosure requirement, the fair values of the individual derivative liabilities would be aggregated (without consideration of offsetting collateral). Finally, under the ASC 815-10-50-4H(d)–(f) disclosures, an entity would aggregate (1) the collateral already posted as of the reporting date for each of the individual derivative liabilities and (2) the remaining liquidity exposure of each individual derivative liability (if it is assumed that the worst-case credit contingency for each individual derivative liability was triggered as of the reporting date).

Example 23 in ASC 815-10-55-185, which is reproduced below, provides an illustration of liquidity risk disclosures.

ASC 815-10

55-185 This Example illustrates the disclosure of credit-risk-related contingent features in derivative instruments as required by paragraph 815-10-50-4H.

Contingent Features

Certain of the Entity’s derivative instruments contain provisions that require the Entity’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the Entity’s debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on December 31, 2009, is $XX million for which the Entity has posted collateral of $X million in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2009, the Entity would be required to post an additional $XX million of collateral to its counterparties.

6.6.3.1.2.1 Multiple Credit-Risk-Related Triggers

Some derivative contracts contain multiple credit-risk-related contingent features. For example, a contract may require an entity to post escalating amounts of collateral with the counterparty as the entity’s credit rating deteriorates along a defined rating spectrum.

On the basis of discussions with the FASB staff, we understand that the disclosure requirements in ASC 815-10-50-4H(d)–(f) are meant to provide financial statement users with information about the entity’s potential liquidity exposure under a “worst-case” credit scenario. The worst-case exposure represents the maximum amount of additional collateral or payment that would be required (beyond what has already been posted) if the credit-risk-related contingent feature providing the greatest liquidity exposure to the entity is triggered at the end of the reporting period, regardless of the likelihood of the feature being triggered.

Note that with respect to the disclosures in ASC 815-10-50-4H(d)–(f), the worst-case credit scenario is based on the population of credit-risk-related contingent features within a contract and would not take into account the contract default or bankruptcy of the entity, which is consistent with item 7 of step 3 in the evaluation of credit-risk-related contingent features in Section 6.6.3.1.1.

The ASC 815-10-50-4H(d)–(f) disclosures represent an aggregation of the liquidity exposures associated with each derivative liability on the basis of the credit-risk-related contingent features specific to each derivative. Likewise, the assessment of the worst-case credit exposure is performed at the individual derivative level as opposed to being based on the single contingency that would have the most significant liquidity impact when applied across an entity’s entire derivative portfolio.

The guidance expressed above applies equally to the ASC 815-10-50-4H(a) and (b) disclosures. In other words, entities should focus their discussion of the “existence and nature of credit-risk-related contingent features” on those features that require the maximum amount of additional collateral or payment (beyond what has already been posted) for each individual derivative liability.

When multiple credit-risk-related contingent features exist within individual derivative contracts, entities are encouraged to consider supplemental disclosure to highlight the potential liquidity exposure associated with each contingency. It is not necessary to ascribe probabilities to the contingencies being triggered nor is it appropriate to exclude contingencies on the basis of a belief that the likelihood of their occurrence is remote.

6.6.3.1.2.2 Disclosure of Nonderivative Positions

The liquidity disclosures in ASC 815-10-50-4H are only required for derivatives recognized at fair value on the balance sheet. However, an entity is encouraged to disclose how contracts other than derivative instruments affect its potential (or worst-case) liquidity exposure to derivatives (i.e., whether the impact is an increased or decreased liquidity exposure). For example, an entity may hold contracts subject to the normal purchases and normal sales scope exception in ASC 815-10-15-13 or other accrual-based contracts that are governed under the same master netting arrangement as the derivative liability in question. If these contracts are in asset or liability positions as of the end of the reporting period, they could reduce or increase, respectively, the entity’s liquidity exposure, as further indicated in the examples below. By describing its entire liquidity exposure (including how nonderivative instruments may affect its worst-case liquidity exposure to derivatives), an entity is providing financial statement users with more relevant information.

On the basis of discussions with the FASB staff, we understood that there are two acceptable approaches (discussed below) to developing the ASC 815-10-50-4H(d)–(f) disclosures. An entity should apply its adopted approach consistently to all its master netting arrangements and consider disclosing its approach in the notes to the financial statements.

6.6.3.1.2.2.1 Approach 1

Under Approach 1, an entity determines the potential collateral requirement on the basis of the fair value (or other measure if explicitly referred to in the derivative contract or master netting arrangement) of the derivative liabilities disclosed under ASC 815-10-50-4H(c),3 offset only by derivative asset positions subject to the same master netting arrangement. While this approach is acceptable, the resulting disclosures often do not accurately reflect an entity’s true liquidity exposure in situations in which negative credit events occur and the master netting arrangement also considers the effect of nonderivative positions in determining the amount of collateral required. Under this approach, an entity would ignore nonderivative positions (e.g., normal purchases and normal sales contracts, receivables, or payables), whether additive or subtractive to potential posting or payment requirements, when developing disclosures about its worst-case liquidity exposure. This approach reflects the narrow scope of ASC 815-10-50-4H (i.e., derivatives only).

To comply with the ASC 815-10-50-4H(d)–(f) disclosures, an entity that follows Approach 1 will most likely need to allocate4 collateral posted under a master netting arrangement to specific derivative liabilities.

6.6.3.1.2.2.2 Approach 2

Under Approach 2, when a master netting arrangement exists, an entity determines its potential exposure on the basis of the contractual relationship (i.e., all contracts subject to the master netting arrangement) and the specific terms of the credit-risk-related contingent features. Master netting arrangements often govern the collateral posting requirements for a basket of positions between counterparties, typically on the basis of a net exposure calculation. Under this approach, an entity is encouraged to consider the effect of master netting arrangements and the impact of all positions under the arrangements (including derivative assets, normal purchases and normal sales contracts, and other accrual positions) when developing the disclosure of the entity’s worst-case liquidity exposure.

As described in more detail in the last example below, while the FASB staff agrees that the full effects of master netting arrangements should be reflected in the ASC 815-10-50-4H(d)–(f) disclosures, it would not object to a disclosure that (1) considers potential offsets to collateral postings or payment requirements (reductions to liquidity exposure) that are driven by nonderivative asset positions in master netting arrangements but (2) ignores potential increases to an entity’s liquidity exposure (beyond the exposure represented by the derivative liability itself) created by nonderivative liabilities under the same master netting arrangement.

Master netting arrangements could affect the amount of additional collateral5 or payments that are required to be disclosed under ASC 815-10-50-4H(e) and (f) in a variety of ways, including the following:

Master netting arrangements could eliminate additional posting or payment requirements if the portfolio is flat or in an asset position to the reporting entity (in such a scenario, a credit-risk-related contingency, such as a credit downgrade, would not prompt a collateral call by the counterparty because the net relationship is an asset to the reporting entity). For example, consider the following positions comprising a relationship under a master netting arrangement as of the balance sheet date (from the perspective of the reporting entity):

In this case, the entity would not be required to post any additional collateral because it has a net asset position with the counterparty. Therefore, the counterparty would have no right to ask for collateral (even in the event of a credit downgrade).
Master netting arrangements could reduce the amount of collateral that must be posted if the reporting entity has an offsetting net asset position with the counterparty when all positions other than derivative liabilities are taken into account. For example, consider the following positions comprising a relationship under a master netting arrangement as of the balance sheet date (from the perspective of the reporting entity):

In this case, the most the counterparty could request is $75; therefore, this amount serves as a cap for the ASC 815-10-50-4H(d)–(f) disclosures. The additional posting requirement could be less than $75 depending on the specific credit features in the master netting arrangement (the worst-case objective feature could require posting of 50 percent of the relationship value, in which case the disclosed amount under this example would be $37.50).
Master netting arrangements could reduce the amount of collateral that must be posted if the reporting entity has already posted some collateral under the relationship. For example, consider the following positions comprising a relationship under a master netting arrangement as of the balance sheet date (from the perspective of the reporting entity):

In this case, the most the counterparty could request is $75; therefore, this amount serves as a cap for the ASC 815-10-50-4H(d)–(f) disclosure. The $75 would then be reduced by any collateral already posted with the counterparty. Even though the $40 posted in this example is most likely related to both the derivative liabilities and normal purchases and normal sales liabilities, the master netting arrangement limits the amounts of additional collateral that could be required as of the balance sheet date to $35 and, accordingly, this amount reflects the entity’s true liquidity exposure. Therefore, $35 is presumed to be the amount required to be disclosed under ASC 815-10-50-4H(e) and (f) because it represents the worst-case exposure should the credit-risk-related contingent feature be triggered. The amount required to be disclosed under ASC 815-10-50-4H(e) and (f) could be less than $35 depending on the specific credit features in the master netting arrangement (the worst-case objective feature could require the posting of 50 percent of the relationship value, in which case the disclosed amount under this example would be $17.50).
Master netting arrangements could increase the amount of collateral that must be posted if the portfolio as a whole is a larger liability than the sum of the derivative liabilities (e.g., if the portfolio includes normal purchases and normal sales contracts that are out-of-the-money). This potential increase would not be a mandatory part of the disclosure (i.e., the increase is related to nonderivatives, so it is technically outside the scope of ASC 815). However, entities are encouraged to incorporate the effects of master netting arrangements since doing so (1) helps achieve symmetry (master netting arrangements could increase or decrease posting or payment requirements) and (2) more accurately reflects liquidity exposure if negative credit events occur. For example, consider the following positions comprising a relationship under a master netting arrangement as of the balance sheet date (from the perspective of the reporting entity):
- Recommended application — In this case, the reporting entity’s exposure to credit features is based on a basket of liabilities (including some nonderivatives); therefore, the disclosure should reflect the true worst-case scenario when the overall relationship governed by the master netting arrangement is taken into account. Accordingly, $120 is presumed to be the amount that must be disclosed under ASC 815-10-50-4H(e) and (f) because it represents the worst-case exposure should the credit-risk-related contingent feature be triggered. The amount required to be disclosed under ASC 815-10-50-4H(e) and (f) could be less than $120 depending on the specific credit features in the master netting arrangement (the worst-case objective feature could require posting of 50 percent of the relationship value, in which case the disclosed amount under this example would be $60).
- Acceptable application — The reporting entity’s exposure to credit-risk-related contingent features is based only on its derivative positions. Accordingly, $70 is presumed to be the amount required to be disclosed under ASC 815-10-50-4H(e) and (f), which could be less than $70 depending on the specific credit features in the master netting arrangement (the worst-case objective feature could require posting of 50 percent of the relationship value, in which case the disclosed amount under this example would be $35).

6.6.4 Balance Sheet Offsetting Disclosures

ASC 815-10

50-7 A reporting entity’s accounting policy to offset or not offset in accordance with paragraph 815-10-45-6 shall be disclosed.

50-7A A reporting entity also shall disclose the information required by paragraphs 210-20-50-1 through 50-6 for all recognized derivative instruments accounted for in accordance with Topic 815, including bifurcated embedded derivatives, which are either:

Offset in accordance with either Section 210-20-45 or Section 815-10-45
Subject to an enforceable master netting arrangement or similar agreement.

50-8 A reporting entity shall disclose the amounts recognized at the end of each reporting period for the right to reclaim cash collateral or the obligation to return cash collateral as follows:

A reporting entity that has made an accounting policy decision to offset fair value amounts shall separately disclose amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral that have been offset against net derivative positions in accordance with paragraph 815-10-45-5.
A reporting entity shall separately disclose amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting arrangements that have not been offset against net derivative instrument positions.
A reporting entity that has made an accounting policy decision to not offset fair value amounts shall separately disclose the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting arrangements.

Pending Content (Transition Guidance: ASC 105-10-65-7)

50-8C See paragraph 230-10-50-9 for disclosure requirements related to where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows.

ASC 210-20

Offsetting of Derivatives, Repurchase Agreements, and Securities Lending Transactions

50-1 The disclosure requirements in paragraphs 210-20-50-2 through 50-5 apply to both of the following:

Subparagraph superseded by Accounting Standards Update No. 2013-01.
Subparagraph superseded by Accounting Standards Update No. 2013-01.
Recognized derivative instruments accounted for in accordance with Topic 815, including bifurcated embedded derivatives, repurchase agreements accounted for as collateralized borrowings and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset in accordance with either Section 210-20-45 or Section 815-10-45.
Recognized derivative instruments accounted for in accordance with Topic 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45.

50-2 An entity shall disclose information to enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on its financial position for recognized assets and liabilities within the scope of the preceding paragraph. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities that are in the scope of the preceding paragraph.

50-3 To meet the objective in the preceding paragraph, an entity shall disclose at the end of the reporting period the following quantitative information separately for assets and liabilities that are within the scope of paragraph 210-20-50-1:

The gross amounts of those recognized assets and those recognized liabilities
The amounts offset in accordance with the guidance in Sections 210-20-45 and 815-10-45 to determine the net amounts presented in the statement of financial position
The net amounts presented in the statement of financial position
The amounts subject to an enforceable master netting arrangement or similar agreement not otherwise included in (b):
1. The amounts related to recognized financial instruments and other derivative instruments that either:
  1. Management makes an accounting policy election not to offset.
  2. Do not meet some or all of the guidance in either Section 210-20-45 or Section 815-10-45.
2. The amounts related to financial collateral (including cash collateral).
The net amount after deducting the amounts in (d) from the amounts in (c).

50-4 The information required by the preceding paragraph shall be presented in a tabular format, separately for assets and liabilities, unless another format is more appropriate. The total amount disclosed in accordance with paragraph 210-20-50-3(d) for an instrument shall not exceed the amount disclosed in accordance with paragraph 210-20-50-3(c) for that instrument.

50-5 An entity shall provide a description of the rights of setoff associated with an entity’s recognized assets and recognized liabilities subject to an enforceable master netting arrangement or similar agreement disclosed in accordance with paragraph 210-20-50-3(d), including the nature of those rights.

50-6 If the information required by paragraphs 210-20-50-1 through 50-5 is disclosed in more than a single note to the financial statements, an entity shall cross-reference between those notes.

Under ASC 815-10-50-7A, if an entity has derivative instruments that are either (1) offset in accordance with ASC 210-20-45 (see Section 6.2.1) or (2) subject to a master netting arrangement or similar arrangement, it is required to comply with the disclosure requirements of ASC 210-20-50-1 through 50-6 (see above).

In addition, ASC 815-10-50-8 requires an entity to separately disclose the amounts of any receivables and payables related to cash collateral under derivative agreements that have been offset against net derivative positions in accordance with ASC 815-10-45-5. If an entity has made an accounting policy decision to not offset the receivables or payables related to cash collateral under derivative agreements against the net derivative positions, it should disclose the amount of those receivables and payables as well as its accounting policy of not offsetting those amounts.

6.6.5 Accounting Policies Regarding Derivatives and Hedging Activities

An entity’s disclosures related to hedging activities should include the following accounting policy decisions, if they are significant:

Whether the entity has offset the derivatives with the fair value amounts recognized for receivables and payables related to those derivatives in accordance with ASC 815-10-45-5 (see Section 6.2.1.1.3).
Whether the entity elects to record changes in the excluded components’ fair value (see Section 2.5.2.1.2.1) currently in earnings (see ASC 815-10-50-4EEEE).
Whether the entity has allocated significant portfolio-level credit adjustments to individual hedging instruments when performing hedge effectiveness assessments and what allocation method was used (see Section 2.5.2.1.2.6.3).
The income statement classification of amounts that are reclassified out of AOCI when it becomes probable that a forecasted transaction will not occur within two months of the timeframe originally designated (see Section 4.1.5.2).
The income statement classification of excluded components of derivatives in qualifying net investment hedging relationships.
The income statement classification of economic hedging activities.
The cash flow statement classification of derivatives.
The accounting for the premium paid (time value) to acquire an option that is classified as HTM or AFS (see ASC 815-10-50-9).

6.6.6 SEC Registrants

Other disclosures may be required by U.S. GAAP or SEC rules and regulations. For example, ASC 825-10-50-20 and 50-21 require disclosures about the concentrations of credit risk of all financial instruments, including derivative instruments. In addition, SEC registrants should refer to the disclosure requirements in SEC Regulation S-X, Rule 4-08(n). Registrants also must comply with the requirements of SEC Regulation S-K, Item 305, in the MD&A section of certain SEC filings.

Footnotes

For example, some contracts give entities the ability to seek “performance assurance” in an amount determined in a commercially reasonable manner if and when the counterparty experiences a change in condition (financial or otherwise) that can be reasonably expected to impair the counterparty’s ability to fulfill its obligations. These clauses do not cite specific trigger events (e.g., downgrade events) and do not prescribe specific dollar amounts or percentages of contract value that must be posted as performance assurance.

This guidance addresses disclosure requirements under ASC 815. If there is substantial doubt about an entity’s ability to continue as a going concern, it would most likely be required to provide additional disclosures, including disclosures that indicate the consequences of bankruptcy or liquidation. Going-concern considerations are beyond the scope of this guidance.

ASC 815-10-50-4H(c) requires entities to disclose the “aggregate fair value amounts of derivative instruments . . . that contain credit-risk-related contingent features that are in a net liability position at the end of the reporting period.”

When determining amounts already posted, an entity may need to allocate posted collateral among derivative and nonderivative positions (e.g., if collateral is posted for a net relationship liability under a master netting arrangement and the relationship consists of derivatives and nonderivatives). Allocation approaches should be reasonable and consistently applied. For guidance on allocation methods under ASC 815-10-45-1 through 45-7 and ASC 210-20-45-1 through 45-5, see Section 6.2.1.1.5).

For simplicity, it is assumed in the examples below that collateral requirements are calculated by reference to the GAAP fair value of the contract (or the portfolio when master netting arrangements are considered) as of the balance sheet date. If contracts (or master netting arrangements) require posting of collateral on a different basis, an entity should use the basis prescribed in the contract to develop the disclosures under ASC 815-10-50-4H(d)–(f). It is also assumed in the examples that the most a counterparty can request is 100 percent collateralization.

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.