Accounting for Derivatives and Hedging (Course Id 1750)

Accounting - Accounting for Course Id 1750

A derivative is a financial instrument or other contract that derives its value from the movement of prices, interest rates, or exchange rates associated with an underlying item. Uncertainty about the future fair value of assets and liabilities or about future cash flows exposes firms to risk. One way to manage the risk associated with fair value and cash flow fluctuations is through the use of derivatives. The derivatives and hedging guidance codified in ASC 815, Derivative Instruments and Hedging Activities is considered as one of the challenging areas in GAAP due to its extensiveness and complexity.

This derivatives and hedge accounting CPA course provides an accountant-friendly overview of derivative instruments and hedge accounting. It discusses derivatives, including the definition of a derivative, scope exceptions to ASC 815, types of risks, accounting requirements, and guidance on embedded derivatives. It addresses the requirements for applying hedge accounting and the specific requirements for fair value hedges, cash flow hedges, and net investment hedges. It also discusses the presentation and disclosure requirements. Finally, the course identifies special situations such as servicing of financial assets and mortgage servicing rights.

NASBA QAS - Text - Technical - NASBA Registry - 1750

Course Learning Objectives

1. Identify the attributes of conventional and derivative financial instruments.
2. Recognize the criteria to qualify for hedge accounting.
3. Identify the accounting requirements for different derivatives and the related disclosure requirements.

Chapter 1 - Accounting for Derivatives and Hedging

Course Learning Objectives

I. Overview of ASC 815

Basic Principles

Subsequent Amendments

Novation

Embedded Contingent Call (Put) Options

Improvements to Hedge Accounting

II. Derivative Instruments

What is a Derivative

Types of Financial Instruments

Characteristics of a Derivative

Scope Exceptions

Types of Risks

Common Forms

Accounting Rules

How to Account for an Embedded Derivative

1. Identify the Embedded Derivative

2. Determine Whether Embedded Derivatives Require Bifurcation

3. Recognize the Value of Hybrid Instrument

III. Hedging Activities

What Is Hedge Accounting

Function

Types of Hedges

General Criteria

What are the Hedging Accounting Options

1. Fair Value Hedges

2. Cash Flow Hedges

3. Net Investment Hedges

Review Questions - Section 1

IV. Financial Statement Presentation

General Disclosure Requirements

Fair Value and Cash Flow Hedges

Net Investment Hedges

Disclosure of Concentrations of Credit Risk for All Financial Instruments

V. Special Situations

Offsetting of Assets and Obligations

Options on Issuer's Securities

Distinguishing Liabilities from Equity

Accounting for Servicing of Financial Assets

Mortgage Servicing Rights

Collateral Pledged in Repurchase Agreements and Securities Lending Arrangements

Review Questions - Section 2

Glossary