The Financial Accounting Standards Board’s Emerging Issues Task Force has issued an accounting standards update on the effect of derivative contract novations on existing hedge accounting relationships.
In a novation, one of the parties to a derivative instrument is replaced with a new party. FASB noted that derivative instrument novations can occur for various reasons, including mergers of financial institutions and intercompany transactions. The novation may involve a hedging instrument in a hedging relationship that has been designated under Topic 815 of the FASB Accounting Standards Codification, Derivatives and Hedging.
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