The forecasted transaction meets both of the following conditions:
It is a transaction with a party external to the reporting entity (except as permitted by paragraphs 815-20-25-30 and 815-20-25- 38 through 25-40).
It presents an exposure to variations in cash flows for the hedged risk that could affect reported earnings.
The forecasted transaction is not the acquisition of an asset or incurrence of a liability that will subsequently be remeasured with changes in fair value attributable to the hedged risk reported currently in earnings.
If the forecasted transaction relates to a recognized asset or liability, the asset or liability is not remeasured with changes in fair value attributable to the hedged risk reported currently in earnings.
If the variable cash flows of the forecasted transaction relate to a debt security that is classified as held to maturity under Topic 320, the risk being hedged is the risk of changes in its cash flows attributable to any of the following risks:
Foreign exchange risk.
The forecasted transaction does not involve a business combination subject to the provisions of Topic 805 or a combination accounted for by an NFP that is subject to the provisions of Subtopic 958-805. [FAS 133, paragraph 29, sequence 2184.108.40.206.1.1]
The forecasted transaction is not a transaction (such as a forecasted purchase, sale, or dividend) involving either of the following:
A parent entity’s interests in consolidated subsidiaries
An entity’s own equity instruments.
If the hedged transaction is the forecasted purchase or sale of a nonfinancial asset, the designated risk being hedged is either of the following:
The risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates
The risk of changes in the cash flows relating to all changes in the purchase price or sales price of the asset reflecting its actual location if a physical asset (regardless of whether that price and the related cash flows are stated in the entity’s functional currency or a foreign currency), not the risk of changes in the cash flows relating to the purchase or sale of a similar asset in a different location or of a major ingredient. Thus, for example, in hedging the exposure to changes in the cash flows relating to the purchase of its bronze bar inventory, an entity may not designate the risk of changes in the cash flows relating to purchasing the copper component in bronze as the risk being hedged for purposes of assessing offset as required by paragraph 815-20-25-75(b).