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LEARNING RESOURCES

Interest Rate Risk Management
in the closed portfolio are not adjusted. The
Learn why, when, and how to manage the interest adjustment amount is maintained on each
rate risk. portfolio layer. If other GAAP requires closed-

CPE SELF-STUDY portfolio amortized cost basis disaggregated
disclosure, the company should exclude the basis
adjustment from its asset cost basis and, instead,
disclose the total portfolio-layer basis adjustment
amount excluded.
Fair Value Measurements of Financial A company that fully or partially discontin-
Instruments: Accounting Standards
ues a hedging relationship voluntarily or due
Learn to recall and identify the related accounting to an anticipated breach in the closed portfolio
standards from the FASB Accounting Standards should allocate the dedesignation basis adjust-
Codification. ment amount to the remaining individual assets

CPE SELF-STUDY in the dedesignated layer. A company is required
to amortize this amount over a period consistent
with other discount or premium amortization
For more information or to make a purchase, go to aicpa.org/cpe-learning periods for these assets following other GAAP
or call the Institute at 888-777-7077.
topics. For an actual breach, the company
should recognize the breach basis adjustment
amount in the current-period interest income or
expense.
A company that makes closed-portfolio basis
adjustments in its hedge accounting should allocate CONCLUSION
these adjustments to different balance sheet line ASU 2022-01 improves hedge accounting flex-
items when presenting closed-portfolio assets in ibility for companies holding debt securities. This
different balance sheet line items. For example, if more closely aligns hedge accounting and financial
a hedged item (a debt security in a portfolio layer) reporting with risk management activity in this
is normally measured at fair value with changes in increasing interest rate economy. This flexibility
fair value reported in other comprehensive income, includes managing financial asset value risks by
such as for an available-for-sale debt security, the using portfolio layering techniques matched with
hedged item should be recognized for fair-value different derivative types tailored to a company’s
adjustment in earnings (instead of other com- individual risks.
prehensive income) to offset the hedge fair-value In addition, companies holding financial asset
adjustment that is recognized in earnings. investments can now designate new hedging
Individual available-for-sale and amortized- relationships and dedesignate existing hedging
cost debt security carrying amounts included relationships. ■

Hedging basics

FASB ASC Topic 815, Derivatives and Hedging, provides hedge income in the same income statement line item. (See example
accounting guidance. At hedge inception, companies must 20 in ASC Paragraph 815-10-55-181 and ASC Paragraphs
determine and document: 815-10-50-4EE through 815-10-50-4EEE.)
■ The hedging relationship; Additional fair-value hedge documentation includes:
■ The risk management objective and strategy for undertaking ■ The method for recognizing in earnings the gain or loss; and
the hedge; ■ The method of calculating fair-value changes due to the
■ The hedged item, hedging instrument, and the nature of the hedged risk and the recognition accounting policy.
risk being hedged; and For a portfolio-layer method hedging relationship containing
■ The method used to assess hedge effectiveness. multiple hedged layers, document that the hedged layers are
For derivatives designated and qualifying as a fair-value supported by assets anticipated to be outstanding during the
hedge, the gain or loss on the derivative and the offsetting designated hedge period and as of the hedged item’s assumed
loss or gain on the hedged item are both recognized in current maturity date.

24 | Journal of Accountancy March 2023