Ebook Advanced accounting (11th edition): Part 2
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Ebook Advanced accounting (11th edition): Part 2
^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du Ebook Advanced accounting (11th edition): Part 2 ure major types of hedge activity that we demonstrate the accounting for: cash flow hedge, fair value hedge, and hedges of foreign currency denominated transactions.LEARNING OBJECTIVESACCOUNTING FOR DERIVATIVE INSTRUMENTS ANDHEDGING ACTIVITIESThe FASB began to formally consider accounting for deriva Ebook Advanced accounting (11th edition): Part 2 tive instruments and hedges when it added the broad topic of accounting for financial instruments to its agenda in 19X6. Financial accounting and repoEbook Advanced accounting (11th edition): Part 2
rting standards needed to address newly created financial instruments. The F.\SB also needed to develop a set of broad, forward-thinking standards tha^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du Ebook Advanced accounting (11th edition): Part 2 issued many statements addressing aspects of accounting for financial instruments, including rhe following:■FASH Statement 1V0. 105, "Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrated Credit Risk” (March 19901■FASB Statemen Ebook Advanced accounting (11th edition): Part 2 t Nil. 107. “Disclosures About Fair Value of Financial Instruments” (December 1991), which superseded and amended Statement No. 105■FASB Statement No.Ebook Advanced accounting (11th edition): Part 2
115. “Accounting for Certain Investments in Debt and Equity Securities” (May 1993)■FASH Statement No. 119, "Disclosure About Derivative Financial Ins^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du Ebook Advanced accounting (11th edition): Part 2 , and revisions occurred between the mitral deliberations regarding derivative instruments and hedging activities in January 1992 and June I99X, when the final version of FASH Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities,” was issued.Corporations had many implemen Ebook Advanced accounting (11th edition): Part 2 tation questions about a standard addressing as complex a topic as derivative instrument accounting. To address these concerns, the FASB formed the DeEbook Advanced accounting (11th edition): Part 2
rivatives Implementation Group (DIG) in I99X, which assists the FASB by advising (hem on how to resolve practical issues that arise when Statement 133^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du Ebook Advanced accounting (11th edition): Part 2 ccounted for as a cash frw hedge.2Uhttersbrid IhH dalinilKHi III a lãr vuhrtt hudge ami IlH lórainslances fl wtnii a ttatwalrre is acumnlHd Ions a lair value3Account for a cash few hedge situaticn from inception Ihrcaqli Sfitllenrenl and lor a lair-value-lierlge silualirxi from inception Ihrougti se Ebook Advanced accounting (11th edition): Part 2 tlltmreril.4Understand the special dcmatnc: accounting related to hedges cf casting foreign ciJTCfKy denoroinalecl receivables arid payahfes.E CcHTprcEbook Advanced accounting (11th edition): Part 2
hend the foctncfo disclosure requirements for denvatnes.c I Jreiersland Ite International Accounting Standards Board aooonnling for rferwathes429430 C^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du Ebook Advanced accounting (11th edition): Part 2 group's deliberations is presented to the FASB for clearance. Hie DIG members include high-level executives from companies such as Time Warner, Inc.. General Electric, and J. p. Morgan Chase, Inc., and partners from international accounting firms.More than 150 issues have been forwarded to the FASB Ebook Advanced accounting (11th edition): Part 2 . and many of them have been cleared by the FASB. Once cleared, guidance is included in lite FASB staff implementation guide (Q&A).Two major standardsEbook Advanced accounting (11th edition): Part 2
have amended parts of Statement No. 133:In June 2000. FAS 138. "Accounting for Certain Derivative Instruments and Hedges." was issued. This standard ^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du Ebook Advanced accounting (11th edition): Part 2 ent of Statement 133 on Derivative Instruments and Hedging Activities.” was issued. This standard clarified the accounting and reporting for derivative instruments, including some types of derivative instruments embedded in other contracts, the latter topic is beyond the scope of our discussion.With Ebook Advanced accounting (11th edition): Part 2 the completion of the FASB ASC in 2009, all of the prior standards on derivatives and hedging are contained in Topic 815. “Derivatives and Hedging.”Ebook Advanced accounting (11th edition): Part 2
For the remainder of this cltapler when we refer to GAAP [1]. we will be referencing ASC Topic 815. unless otherwise noted.Hedge AccountingGAAP's obje^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du Ebook Advanced accounting (11th edition): Part 2 y's exposure to risk. For the financial statements to reflect the derivative contract's effectiveness, both changes in the hedged item's fair value and the hedging instrument's fair value resulting from the underlying change must be re corded in the same period. The investor can then clearly assess Ebook Advanced accounting (11th edition): Part 2 the effectiveness of the strategy. The term hedge accounting refers to accounting designed to record changes in the value of the hedged item, and in tEbook Advanced accounting (11th edition): Part 2
he value of the hedging instrument in the same accounting period.ASC Topic 815 establishes three defining characteristics for a derivative:1.Il has on^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du Ebook Advanced accounting (11th edition): Part 2 ment that is smaller than would be required for other types of contracts that would be expec ted to have a similar response to changes in market factors.3.Ils terms require or permit net settlement, so it can readily be settled net by a means outside the contract, or it provides for delivery of an a Ebook Advanced accounting (11th edition): Part 2 sset that puts the recipient in a position not substantially different from net settlement.The specific requirements of ASC Topic 815 arc based on fouEbook Advanced accounting (11th edition): Part 2
r fundamental or guiding decisions:■Derivative instruments represent rights or obligations that meet the definitions of assets or liabilities and shou^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are du^^CHAPTERAccounting for Derivatives andHedging ActivitiesThis chapter describes ill detail the accounting for derivalivcs used as hedges. There are duGọi ngay
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