FASB Proposes New Updates to Hedge Accounting in ASC 815

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• On June 17, 2026, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that would amend Accounting Standards Codification (ASC) Topic 815, “Derivatives and Hedging,” to improve the accounting for interest rate risk hedging and net investment hedging in three specific areas:
  • Hedging interest rate risk for held-to-maturity (HTM) debt securities. The proposal would permit entities to designate interest rate risk as the hedged risk for HTM debt securities in both fair value and cash flow hedges, expanding hedge accounting opportunities for investment portfolios.
  • Amending the definition of the secured overnight financing rate (SOFR) overnight index swap (OIS) rate. The proposal would amend the definition of the SOFR benchmark interest rate to permit any SOFR tenor to be designated in qualifying hedge relationships.
  • Permitting float-to-float cross-currency swaps with different reset dates to be hedging instruments in net investment hedges. The proposal would expand the population of eligible net investment hedging instruments to permit certain float-to-float cross-currency swaps with different reset dates.
• Stakeholders have until Aug. 17, 2026, to provide comments on the proposed ASU.

Crowe observation: While the proposed ASU contains only three targeted amendments, it is consistent with a broader trend in the board’s hedge accounting projects over the past decade. Rather than introducing new hedge accounting models, the FASB has focused on removing exceptions, limitations, and operational barriers that prevent economically effective hedges from qualifying for hedge accounting.

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Background

The proposed ASU represents the latest step in the FASB’s ongoing efforts to improve hedge accounting under ASC 815. Beginning with ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” and continuing with ASU 2025-09, “Hedge Accounting Improvements,” the board has focused on eliminating barriers that prevent highly effective economic hedges from qualifying for hedge accounting or result in operational complexity that constrains entities’ risk management activities.

During the FASB’s 2025 agenda consultation process, stakeholders identified several remaining areas in Topic 815 that continue to limit the application of hedge accounting despite the existence of economically effective hedging strategies. In response, the board proposed three targeted and limited amendments addressing:

• Interest rate risk of HTM debt securities
• Benchmark interest rate designations involving SOFR
• Net investment hedges

According to the proposal, the amendments are intended to improve current GAAP to better reflect the economics of an entity’s risk management activities in its financial statements. The proposed amendments also are intended to enhance the operability of hedge accounting.

Breaking it down: 3 targeted improvements

Hedging interest rate risk for HTM debt securities

The proposal would permit entities to designate interest rate risk as the hedged risk in both fair value hedges and cash flow hedges of HTM debt securities. Under current GAAP, entities are prohibited from designating interest rate risk as the hedged risk for HTM debt securities and generally are limited to credit risk and foreign exchange risk designations.

The FASB noted that this restriction creates a disconnect between how interest rate risk is managed and the hedge accounting strategies available under Topic 815. The proposal would align the treatment of HTM securities more closely with existing hedge accounting approaches available for held-for-investment loans.

Crowe observation: The board acknowledged that entities remain exposed to interest rate risk regardless of the accounting classification of the security. If the proposal is finalized, the amendment would allow institutions to maintain HTM classification while simultaneously applying hedge accounting to interest rate risk exposures.

This is a significant amendment for financial institutions as many banks actively manage interest rate risk on an entitywide basis but have been historically prohibited from applying hedge accounting to securities classified as HTM.

Amending the definition of the SOFR OIS rate

The proposal would amend the definition of the SOFR OIS rate so that any tenor of SOFR could qualify as a benchmark interest rate under Topic 815. Under current GAAP, only the SOFR OIS rate is specifically identified as a benchmark interest rate. The FASB observed that term SOFR and other SOFR-based rates are now widely quoted, widely used, and commonly referenced in financing transactions, reducing the concerns that existed when SOFR was first added as a benchmark interest rate in 2018.

The proposal could benefit entities applying cash flow hedge accounting to forecasted purchases or issuances of fixed-rate debt instruments by broadening the tenors that may be designated and by avoiding missed forecasts in cases where the tenor of SOFR in the purchased or issued debt is other than overnight. For entities that apply fair value hedge accounting to fixed-rate debt instruments, the proposal broadens the tenors of SOFR that may be designated in a hedge of benchmark interest rate risk.

Crowe observation: When SOFR was added as a benchmark interest rate in 2018, the board limited eligibility to the overnight tenor because of uncertainty about how term SOFR markets would develop. The board now believes those concerns have been resolved and that removing the OIS limitation would better align the guidance with entities’ risk management strategies.

Permitting float-to-float cross-currency swaps with different reset dates to be hedging instruments in net investment hedges

The proposal would expand the population of eligible hedging instruments in net investment hedges by permitting certain float-to-float cross-currency swaps with different repricing intervals and dates. Under current GAAP, both floating-rate legs generally must share the same repricing intervals and dates to qualify.

The proposed amendment instead would require repricing intervals and dates to occur every six months or more frequently. The board concluded that such repricing frequency is sufficient to support the assumption that variable cash flows are based on market rates. The proposal also would revise related hedge effectiveness guidance to align the hypothetical derivative with the modified eligibility requirements.

According to the FASB, the amendment reflects market conventions that have developed following London Interbank Offered Rate (LIBOR) cessation and would improve the ability of entities to apply hedge accounting to economically effective net investment hedging strategies.

Crowe observation: The board observed that post-LIBOR market conventions no longer result in consistent repricing intervals and reset dates across jurisdictions, creating challenges for otherwise effective net investment hedges. Although narrower in application than the first two proposed amendments, the third proposed amendment is intended to provide a more operable framework that reflects current market conventions while maintaining appropriate guardrails around interest rate risk exposure.

Effective date and transition

The FASB will determine the effective date of the proposed amendments after evaluating stakeholder feedback.

If the proposal is finalized, entities would apply the amendments prospectively to all applicable hedging relationships as of the adoption date. Early adoption would be permitted for all entities upon issuance of a final ASU.

Stakeholders have until Aug. 17, 2026, to review and provide comments on the proposed ASU.

FASB materials reprinted with permission. Copyright 2026 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants.