| Course | ACC 690 Advanced Topics in Financial Reporting |
|---|---|
| Module | Module 1 |
| Paper type | graduate discussion post on the purpose of hedge accounting |
| Length | About 360 words, 3 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 690 Module 1
Module One Discussion
A Gain With Nothing to Offset
The ethanol producer I am following this term buys about 120 million bushels of corn a year. In October it bought March corn futures on 20 million bushels at $4.30 to fix the cost of grain it will buy in the first quarter. By December 31, March futures were $4.55. The futures gained $5.0 million, and the higher corn price will show up in first-quarter cost of goods sold.
Without hedge accounting, ASC 815 requires the futures at fair value with the change in earnings. Fourth-quarter profit rises by $5.0 million, and first-quarter profit falls when the more expensive corn is used, even though the company locked in its cost and its economic margin did not change. Investors see a swing that the business did not experience.
Cash flow hedge accounting corrects the timing. If the company documents the hedge at inception, identifying the forecasted purchase, the futures and the risk hedged, and shows the hedge is highly effective, the gain goes to other comprehensive income and moves into earnings when the corn's cost does, through cost of goods sold as the ethanol is sold. The FASB's 2017 update made this easier by allowing the company to hedge only the futures price component of its corn contracts, removing separate measurement of ineffectiveness and allowing qualitative effectiveness assessments after the first test (Financial Accounting Standards Board, 2017).
The price is documentation, testing and systems. Several ethanol producers hedge economically but skip hedge accounting, then explain the volatility and present adjusted results. Zhang (2009) examined how firms changed their risk management when SFAS 133 brought derivatives onto the balance sheet at fair value, and Campbell (2015) found that unrealized gains and losses on cash flow hedges held in other comprehensive income carry information about future profitability. My view is that for a company whose margins depend on corn, hedge accounting is worth its cost, because it lets reported margins reflect the economics the hedging program is meant to secure.
For classmates: would you rather explain a $5 million swing to investors each quarter or carry the documentation burden of hedge accounting, and does your answer depend on the company's size?
References
Campbell, J. L. (2015). The fair value of cash flow hedges, future profitability, and stock returns. Contemporary Accounting Research, 32(1), 243-279. https://doi.org/10.1111/1911-3846.12069
Financial Accounting Standards Board. (2017). Derivatives and hedging (Topic 815): Targeted improvements to accounting for hedging activities (Accounting Standards Update No. 2017-12). Author.
Zhang, H. (2009). Effect of derivative accounting rules on corporate risk-management behavior. Journal of Accounting and Economics, 47(3), 244-264. https://doi.org/10.1016/j.jacceco.2008.11.007
What the ACC 690 Module 1 instructions ask for
The first ACC 690 discussion usually asks about the purpose of hedge accounting or another advanced topic that introduces the course. A typical answer runs a few hundred words and draws on ASC 815, the FASB's 2017 update and research, then replies to classmates that test their examples. Strong posts show the accounting mismatch with numbers, explain how fair value and cash flow hedge accounting correct it differently and evaluate the costs and benefits for a real or illustrative company. Some prompts ask why companies choose not to apply hedge accounting even when they hedge economically, which is a good place to take a position. A one-quarter earnings comparison with and without hedge accounting makes the point.
How this ACC 690 Module 1 discussion example is built
The post follows an ethanol producer that buys March corn futures on 20 million bushels at $4.30 in October to hedge its first-quarter purchases. By December 31 futures rise to $4.55, a $5.0 million gain. Without hedge accounting, the gain hits fourth-quarter earnings while the higher corn cost arrives in the first quarter, so profit swings up and then down although the economics were locked in. Cash flow hedge accounting holds the gain in other comprehensive income until the corn's cost reaches earnings. The post weighs documentation costs, notes that some producers skip hedge accounting and explain the volatility instead, and cites Zhang and Campbell before asking classmates which burden they would rather carry.
Where the ACC 690 Module 1 rubric puts the points
Scoring for the hedge accounting discussion typically weighs a clear explanation of the mismatch, accurate description of the hedge accounting models, a worked example, evaluation of costs and benefits, use of research and replies. The strongest posts quantify the mismatch, explain how the 2017 update simplified effectiveness testing and presentation, and take a position on when hedge accounting is worth applying. Posts that describe derivatives without the reporting problem, or that confuse fair value and cash flow hedges, score lower. Replies that rework a classmate's example under the other model or question the claimed benefit are worth more than agreement. Naming the specific changes in the 2017 update adds precision.
ACC 690 Module 1 help: the mistakes that cost points
Students sometimes describe hedge accounting as a way to hide derivative losses, when it changes only the timing of recognition so gains and losses meet the item they hedge. Others overlook that a company can hedge economically without hedge accounting, accepting volatility in exchange for less documentation. If your prompt focuses on fair value hedges, such as an interest rate swap on fixed-rate debt, the mismatch runs the other way and the same reasoning applies. Show one quarter's earnings with and without hedge accounting; the swing makes the case better than a definition. Then say which model your company should use and why.
Get ACC 690 Module 1 written to your instructions
Send the ACC 690 Module 1 prompt. The post will explain the reporting problem with a concrete example, apply the current standard accurately and back a clear position with research, then close by inviting classmates in. Two days is typical, and there is no fee for your first request. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 690 Module 1 questions, answered
Where can I find a free ACC 690 Module 1 Discussion sample?
This page includes the full ACC 690 Module 1 post on why hedge accounting exists, using corn futures at an ethanol producer.
What is the accounting mismatch that hedge accounting addresses?
Derivatives are measured at fair value with changes in earnings, while the item they hedge, such as a forecasted purchase, may not be recognized yet, so earnings show a gain or loss with no offset in the same period.
How does a cash flow hedge work in the accounts?
Changes in the hedging instrument's fair value go to other comprehensive income and are reclassified into earnings when the hedged transaction affects earnings.
What did ASU 2017-12 change?
It eliminated separate measurement of ineffectiveness for cash flow hedges, allowed hedging of contractually specified components, eased effectiveness assessment and required hedge results in the same income statement line as the hedged item.
Why do some companies hedge without hedge accounting?
To avoid the documentation and testing burden, accepting earnings volatility and explaining it to investors, often with non-GAAP measures.