FASB issues ASU on hedge accounting improvements
Defining Issues | November 2025
The ASU is intended to more closely align financial reporting with the economics of an entity’s risk management activities.
The ASU is in response to stakeholder feedback from implementing ASU 2017-12 and the effects of LIBOR cessation. The main amendments relate to cash flow hedging, but some of the amendments affect certain fair value and net investment hedges.
Applicability
- ASU 2025-09
- All entities
Relevant dates
| Effective dates | Public business entities | All other entities |
|---|---|---|
| Annual periods – Fiscal years beginning after | December 15, 2026 | December 15, 2027 |
| Interim periods – In fiscal years beginning after | December 15, 2026 | December 15, 2027 |
| Early adoption permitted? | Yes, on any date on or after issuance of the ASU. | |
Key impacts
The main amendments relate to cash flow hedging, but some of the amendments affect certain fair value and net investment hedges. These include:
Nonfinancial component hedges:
- Permits an entity to designate a variable price component of a forecasted purchase or sale of a nonfinancial asset if the component is clearly and closely related to the nonfinancial asset being purchased or sold.
Groups of forecasted transactions – similar risk exposure:
- Allows individual forecasted transactions – including interest payments based on different interest rate indexes – to be hedged in a group if they have a similar risk exposure.
- Provides guidance for determining whether individual transactions have similar risk exposure.
Change in hedged risk for ‘choose-your-rate’ debt instruments:
- Introduces a model borrowers can use in cash flow hedges of forecasted interest payments on ‘choose-your-rate’ debt instruments.
- Allows a borrower to select any documented interest rate index and/or tenor without automatically discontinuing hedge accounting, and to apply certain simplifying assumptions.
- This model may be applied to existing debt (and its replacements), and to forecasted issuances of debt.
Report contents:
- Source and applicability
- Fast facts, impacts, actions
- Background
- Nonfinancial component hedges
- Groups of forecasted transactions: Similar risk exposure
- Change in hedged risk: Forecasted interest payments on choose-your-rate debt
- Net written options as hedging instruments
- Foreign‑currency‑denominated debt instrument as hedging instrument and hedged item (dual hedge)
- Effective dates and transition
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