Section 2: 35–45%B9

Derivatives and Hedge Accounting

Exam insight

Derivatives and hedging is a tough BAR area that turns on one thing: classifying a hedge correctly and routing its gain or loss to the right place (earnings versus other comprehensive income). The exam rewards candidates who can match the hedge type to its accounting treatment fast.

What AICPA wants you to know

1Identify the three defining characteristics of a derivative under ASC 815.
2Distinguish fair value hedges, cash flow hedges, and net investment hedges and their accounting.
3Record gains and losses on speculative (undesignated) derivatives.
4Explain how the effective portion of a cash flow hedge flows through OCI and is later reclassified to earnings.
5Apply the remeasurement of both the derivative and the hedged item in a fair value hedge.
6Recognize the documentation and effectiveness requirements needed to qualify for hedge accounting.

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Hedge ClassificationName the hedge and the gain routes itself: fair value to earnings, cash flow and net investment to OCI, undesignated to earnings.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.