2.6 Derivatives and Hedging
Management needs to evaluate all derivative instruments, regardless of whether they are designated in a hedging relationship, for possible inclusion in the carve-out financial statements. In performing this evaluation, an entity should consider whether a derivative instrument is directly attributable to the carve-out entity.
Generally, if a derivative instrument hedges an item that has been allocated to the carve-out financial statements (e.g., an interest rate swap that hedges debt included in the carve-out financial statements), the derivative instrument should also be included in the carve-out financial statements.
The accounting for derivative instruments allocated to the carve-out financial statements will usually mirror the accounting historically applied by the parent entity. For example, if a derivative instrument qualifies for hedge accounting in the parent entity’s historical financial statements, hedge accounting (including any related AOCI balances for cash flow hedges) should also be carried forward to the periods presented in the carve-out financial statements. The accounting should give users of the carve-out financial statements the best possible view of the historical activity.