FASB pubs updated derivatives scope guidance

Core Insights - The Financial Accounting Standards Board (FASB) has issued updated guidance on derivatives accounting, marking the seventh standards update of the year [3][7] - The update aims to refine the definition of derivatives, addressing concerns that current guidance leads to misclassification of financial instruments [4][5] - The new guidance will be effective for annual reporting periods beginning after December 15, 2026, and will clarify the scope of existing standards [7] Derivatives Accounting Update - The update comes after a two-year period since FASB added the project to its high-priority agenda, indicating a need for clearer guidance [4] - FASB member Frederick Cannon highlighted that the existing guidance was not intuitive and resulted in many assets being classified as derivatives incorrectly [4] - The board is addressing "scope creep," where companies classify too many items as derivatives, which can obscure the economic reality of financial situations [5] Specific Exemptions - The new derivative accounting guidance will not apply to certain financial instruments related to environmental, social, and governance (ESG) arrangements, as well as specific research and development (R&D) and litigation funding contracts [7] - The complexity of current derivative standards arises from criteria that include financial arrangements with underlying variables affecting fair value, such as litigation outcomes [6]