Hedge Accounting: Hedge Accounting Qualification

Derivative instruments can be powerful tools for a company to use to reduce its exposure to financial risks, but there is a drawback. Accounting for derivative instruments can create volatility in earnings. That is because these instruments are recorded at fair value, with changes in fair value recorded through the income statement in accordance with ASC 815. Meanwhile, the hedged item is accounted for in accordance with other standards. Is there anything a company can do to mitigate this volatility? Yes! If they qualify for, and elect to use, hedge accounting they can mitigate this income statement volatility. However, in order to apply hedge accounting strict criteria must be met. This hedge accounting CPE course (1.0 CPE) explores the criteria to qualify for hedge accounting under U.S. GAAP. It also illustrates the effectiveness requirements within ASC 815 needed to maintain hedge qualification.

Topics covered in this hedge accounting CPE course include: 

• Overview of hedge criteria under ASC 815
• Hedging strategies (cash flow hedge, fair value hedge, hedge of a net investment in a foreign subsidiary)
• Effectiveness testing
• Formal documentation

Looking for even more information on hedge accounting and the accounting for derivative instruments? Make sure to check out our relevant course collections, linked below. 

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 By the end of this course, you should be able to: 

• Identify the documentation requirements to qualify for hedge accounting 
• Recognize the hedge accounting qualification requirements for hedged items and the risk being hedged 
• Recognize the hedge accounting qualification requirements for the hedging instrument 
• Recall the effectiveness requirements to qualify for hedge accounting