The French subsidiary of a U.S. parent corporation forecasts that it will purchase parts from a Swiss

Question:

The French subsidiary of a U.S. parent corporation forecasts that it will purchase parts from a Swiss sup¬ plier in six months. The U.S. parent contemplates purchasing a Swiss franc call option to hedge this for¬ eign exchange risk. Whether it is acceptable for the U.S. parent corporation to use hedge accounting for the hedge of a forecasted foreign currency transaction of its French subsidiary is in question. Search the FASB’s Original Pronouncements using either hard copy or the Financial Accounting Research System (FARS) database. LO9

Required 1. Identify the authoritative pronouncement and paragraph(s) within it that provide an answer to the issue in question.

2. Summarize the FASB’s response with respect to the question that has arisen.

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