What it is
Hedge accounting is available only when the entity designates the relationship and documents it formally at inception. The documentation names the risk management objective, the instrument, the hedged item and the method used to assess effectiveness.
This memo captures each of those items, the accounting treatment by hedge type, the entries, the discontinuation events and the fair value and disclosure inputs. Sign it on or before the designation date.
When to use it
- On the day a swap, forward or option is designated as a hedge.
- When a hedging relationship is redesignated or its critical terms change.
- To support interest rate hedges on variable-rate debt or foreign currency hedges of forecasted sales.
What’s inside
- Designation table: instrument, type, risk hedged and approval
- Hedge objective and strategy statement tied to policy
- Hedged item or forecasted transaction with probability support
- Effectiveness method at inception and ongoing, with excluded components
- Accounting treatment by hedge type, entries and discontinuation events
Standard cited
This template follows ASC 815. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
When must the documentation exist?
At inception of the hedge. Documentation completed later cannot support hedge accounting for the earlier period.
Where do cash flow hedge gains and losses go?
The effective portion sits in other comprehensive income and is reclassified to earnings when the hedged transaction affects earnings, in the same line as the hedged item.
What if the forecasted transaction no longer looks probable?
Hedge accounting stops for that transaction. If the transaction is probable of not occurring, the related amount in accumulated other comprehensive income is reclassified to earnings immediately.
Related templates
- Cash Flow Hedge AOCI Roll-forward (ASC 815)
- ASC 820 Fair Value Hierarchy Memo
- Debt and Interest Rollforward Schedule
- GAAP Disclosure Checklist (Private Company, Short Form)
Last updated 11/05/2026. All free templates.