Derivatives and hedge accounting

Derivatives, whether freestanding or embedded in other instruments, may be used to manage exposure to certain risks or for speculative purposes. Explore PwC's latest thinking on derivatives and hedging, as companies in all industries are evaluating whether to early adopt the FASB's new guidance on hedge accounting. 

Quick update on what is changing

  • Hedge accounting is changing, with some companies early-adopting FASB's new standard before the 2019 effective date.
  • In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
  • The FASB's new guidance more closely aligns hedge accounting with companies' risk management strategies, simplifies the application of hedge accounting, and increases transparency as to the scope and results of hedging programs.
  • The changes significantly affect what qualifies for hedge accounting, how hedge effectiveness is assessed, and how the hedging results are presented and disclosed in the financial statements.
  • The amendments can be early-adopted in any interim or annual period.
  • The mandatory effective date for calendar year-end public business entities (PBEs) is January 1, 2019. All others have an additional year to adopt.
  • At its February 2018 meeting, the FASB clarified transition elections for fair value hedges and two items related to the new tabular disclosure requirements for basis adjustments. They also discussed specific situations related to prepayable instruments designated in fair value hedges of interest rate risk and amortization of excluded components in net investment hedges.
  • At its March 2018 meeting, the FASB decided to add a narrow-scope project to determine how to account for basis adjustments created through the last of layer approach. The FASB will also form a project resource group to assist in monitoring implementation of the contractually specified component model (and potentially other issues).
  • Companies should continue to monitor future standard setting in these areas to assess the implications on its current and future accounting conclusions.

Derivatives and hedging accounting guide

Hedging - are you early adopting the FASB's new guidance?

New hedge accounting guidance is aimed at aligning accounting with risk management strategies and simplifying application. Learn more in our 4 minute video.

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Heather Horn
US Strategic Thought Leader, National Professional Services Group, PwC US
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David Schmid
IFRS & US Standard Setting Leader, National Professional Services Group, PwC US
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