Long-Term Derivative & Hedging Assets

Category

Balance Sheet

Units

Currency

US-GAAP elements

DerivativeAssetsNoncurrentDerivativeAssets

Reference

ASC 815, Derivatives and Hedging

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Long-term derivative and hedging assets are the fair value of derivative contracts that are in a gain position for the company and are expected to settle more than a year after the balance-sheet date. Typical examples are long-dated interest-rate swaps, cross-currency swaps, and multi-year commodity hedges.

A derivative becomes an asset when market movements have made the contract favorable to the company, meaning a counterparty would have to pay it to close the position. Contracts, or portions of them, due to settle within a year are reported in current assets instead.

ASC 815 requires every derivative to be recorded at fair value on the balance sheet. Companies can designate derivatives as hedges of specific risks, such as fixed-rate debt, forecast foreign-currency purchases, or a net investment in a foreign subsidiary, and hedge accounting then governs when the changes in value reach earnings. In XBRL filings the noncurrent amount is tagged DerivativeAssetsNoncurrent; DerivativeAssets is the total before splitting by settlement date.

Reported balances are usually net of master netting arrangements, which allow a company to offset asset and liability positions with the same counterparty. Many companies also hold or post cash collateral against their positions. The derivatives footnote discloses gross amounts, the effect of netting, and collateral, and those figures can differ substantially from the net line. Plenty of companies do not show long-term derivatives separately at all and include them in other long-term assets.

Because a derivative's value changes as rates and prices move, the balance can swing from asset to liability between reporting periods without any action by the company. For hedgers, a gain on the derivative generally offsets a loss on the hedged item, so the asset alone does not represent a free gain. Analysts look at these balances to understand the scale of a company's hedging program and its counterparty exposure, since the asset is only worth something if the counterparty can pay when the contract settles.