FASB ASC 815

FASB ASC 815
Name	FASB ASC 815
Other names	Accounting Standards Codification Topic 815
Issued by	Financial Accounting Standards Board
Subject	derivative instruments and hedging
First issued	1998
Related	FASB, SEC, IASB, SFAS

FASB ASC 815 FASB ASC 815 is the Financial Accounting Standards Board codification topic that addresses accounting for derivative instruments and hedging activities, created amid reforms by the Financial Accounting Standards Board and influenced by pronouncements like Statement of Financial Accounting Standards No. 133 and consultations with the Securities and Exchange Commission. It guides recognition, measurement, presentation, and disclosure practices used by preparers monitored by agencies such as the Public Company Accounting Oversight Board and stakeholders including Ernst & Young, Deloitte, and PricewaterhouseCoopers. Its principles intersect with international frameworks such as standards from the International Accounting Standards Board and the European Commission regulatory environment.

Overview

FASB ASC 815 establishes rules for identifying derivative instruments and documenting hedging relationships, drawing on precedent from Financial Accounting Standards Board pronouncements, deliberations influenced by the Securities and Exchange Commission and responses from firms like Goldman Sachs and JPMorgan Chase. The topic delineates when an instrument is a derivative under criteria connected to underlying variables and net settlement provisions discussed in forums including panels at the American Institute of Certified Public Accountants and the International Swaps and Derivatives Association. It replaced portions of older guidance promulgated after episodes such as the Long-Term Capital Management crisis and guidance revisions following input from auditors at KPMG and regulators in the Federal Reserve System.

Scope and Key Provisions

The scope defines which instruments qualify as derivatives and which hedging strategies qualify for special accounting, referencing instruments traded in markets like the Chicago Mercantile Exchange and contracts used by institutions such as Bank of America and Morgan Stanley. Key provisions require formal documentation at hedge inception, periodic effectiveness assessment influenced by models used by BlackRock and risk committees at Citigroup, and criteria for prospective and retrospective testing used by treasury teams at ExxonMobil and General Electric. The topic also describes permitted hedge types—fair value hedges, cash flow hedges, and hedges of net investments in foreign operations—concepts debated in comment letters from groups like the Securities Industry and Financial Markets Association and law firms such as Skadden, Arps, Slate, Meagher & Flom.

Accounting Recognition and Measurement

Recognition rules require entities such as The Coca-Cola Company and Boeing to recognize derivatives on the balance sheet as assets or liabilities, applying measurement principles that can involve valuation techniques used by advisory firms like Moody's Analytics and S&P Global. Measurement includes fair value determination methodologies, influenced by inputs categorized according to frameworks similar to those used by International Accounting Standards Board deliberations and valuation practices endorsed by American Institute of Certified Public Accountants guidance. Hedge accounting permits remeasurement approaches for effective portions of cash flow hedges reflected in equity accounts of corporations like Apple Inc. and Microsoft, while ineffective portions flow through income statements monitored by audit committees such as those at Intel Corporation and Cisco Systems.

Disclosures and Reporting Requirements

Disclosures require detailed qualitative and quantitative information that companies like Ford Motor Company and Toyota Motor Corporation provide in filings with the Securities and Exchange Commission and present in investor materials used by institutions like Vanguard Group and BlackRock. Reporting requirements include tables reconciling gains and losses recognized in earnings versus other comprehensive income, sensitivity analyses akin to practices at American Express and Visa Inc., and narrative descriptions of objectives and strategies similar to disclosures reviewed by proxy advisory firms such as Institutional Shareholder Services. Filings are subject to oversight by regulators including the Public Company Accounting Oversight Board and enforcement scrutiny from the Department of Justice in cases involving material misstatements.

Implementation Guidance and Examples

Implementation guidance offers examples and practical expedients that practitioners at firms like McKinsey & Company and consultants from Bain & Company use when advising corporate clients such as Procter & Gamble and Johnson & Johnson. Illustrative scenarios cover embedded derivatives in contracts used by Pfizer and Merck & Co., documentation checklists referenced by corporate treasuries at Chevron Corporation and Royal Dutch Shell, and transition provisions utilized during convergence discussions with the International Accounting Standards Board. Training materials and case studies developed by professional organizations such as the Association of Chartered Certified Accountants and Institute of Management Accountants help preparers navigate model selection and effectiveness testing.

Regulatory and Market Impact

ASC 815 has influenced derivative markets, risk management practices at major banks including HSBC and Barclays, and capital markets activities overseen by the Federal Reserve System and European Central Bank. Its requirements have affected product structuring by sell-side firms like Morgan Stanley and buy-side strategies at BlackRock, spurred enhancements in internal controls evaluated by auditors from Deloitte and Ernst & Young, and shaped litigation and enforcement outcomes involving entities such as Enron in historical context and more recent compliance matters assessed by the Securities and Exchange Commission. The topic continues to interact with international standard-setting initiatives led by the International Accounting Standards Board and policy debates at bodies like the Financial Stability Board.

Category:Accounting standards