Preface

Entities are exposed to operational risks, and they can mitigate some of those risks by entering into separate contracts that may meet the definition of a derivative instrument. For such circumstances, ASC 815 allows entities to use a specialized hedge accounting for qualified hedging relationships. If hedge accounting is not applied, changes in the fair values of derivative instruments are recognized in earnings in each reporting period, which may or may not match the period in which the risks that are being hedged affect earnings. Therefore, the objective of hedge accounting is to match the timing of income statement recognition of the effects of the hedging instrument with the timing of the recognition of the hedged risk.

Hedge accounting is a complex aspect of GAAP that is largely governed by “rules-based” guidance developed over many years in response to constituents’ requests for interpretive guidance. This Roadmap is intended to help entities navigate that accounting and financial reporting guidance, reduce complexity, and arrive at appropriate accounting conclusions. For a summary of substantive changes made to this publication since the 2022 version, see Appendix D.

This Roadmap provides guidance on the application of hedge accounting to a qualified hedging relationship. For a comprehensive discussion of the identification, classification, measurement, and presentation and disclosure of derivative instruments, including embedded derivatives, see Deloitte’s Roadmap Derivatives.

We hope you find this Roadmap a useful resource, and we welcome your suggestions for future improvements. If you need assistance with applying the guidance or have other questions about this topic, we encourage you to consult our technical specialists and other professional advisers.