Hedge Accounting: Introduction to Hedge Accounting

Entities are exposed to many risks, but luckily, financial risks can be mitigated using financial instruments called derivatives. Such risks include interest rate risk, foreign currency risk, and price (or market) risk. But there's one small catch! Derivative instruments can create volatility in earnings because these instruments are normally recorded at fair value with changes in fair value recorded through the income statement in accordance with ASC 815. However, the underlying hedged item is accounted for using other standards creating a mismatch. Enter hedge accounting! Upon meeting strict criteria, hedge accounting may be used to reduce this income statement volatility. So why doesn't everyone do it? Because it's complex! This CPE-eligible, eLearning course (1.0 CPE) walks through hedge accounting under U.S. GAAP in a way that is easily understood. 

This is the first course in our two-part hedge accounting training series.

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

• Define economic hedging and hedge accounting 
• Distinguish between the different types of hedging strategies 
• Recall the accounting for qualifying hedges