BAR Hedging · Updated November 2026

Fair Value Hedge or Cash Flow Hedge: What Risk Is Being Hedged?

Ask whether the company is protecting the value of an existing position or variability in future cash flows.

Fair value hedge

Protects against changes in the fair value of a recognized asset, liability, or qualifying firm commitment attributable to the hedged risk.

Cash flow hedge

Protects against variability in future cash flows associated with a recognized item or qualifying forecasted transaction.

Accounting difference

The location and timing of gains and losses differ between qualifying fair value and cash flow hedge accounting, with OCI especially relevant to cash-flow hedges.

Intuition

Fixed-rate exposure to fair-value changes suggests one analysis, while variable future cash payments can suggest another.

The takeaway

Fair value hedge protects value. Cash flow hedge protects future cash-flow variability.

Related Summit guides

Derivative typesContinue with a related Summit CPA Review guide.Foreign currencyContinue with a related Summit CPA Review guide.BAR formulasContinue with a related Summit CPA Review guide.

FAQ

Can forecasted transactions be associated with cash flow hedges?

Yes.

Does OCI commonly appear in cash-flow hedge accounting?

Yes.

Are all derivatives designated as hedges?

No.