FASB Summary of February 20, 2002 Board Meeting Discussion

FASB: Summary of February 20, 2002 Board Meeting Discussion

Derivatives Implementation Group

Summary of February 20, 2002 Board Meeting Discussion on Statement 133 Implementation Issues

Financial Instruments: amendment to Statement 133. The Board decided to proceed with issuance of a proposed Statement that would amend FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, subject to decisions to be made at the March 13, 2002 Board meeting. The Board decided that the final Statement should be effective for entities beginning on the first day of their first fiscal quarter beginning after November 15, 2002, except in two situations. Entities should continue to apply amendments that resulted from the Derivatives Implementation Group (DIG) process that were cleared by the Board and have been effective for fiscal quarters that began prior to November 15, 2002 in accordance with their respective effective dates. Qualifying special-purpose entities (SPEs) that are not grandfathered must apply the provisions related to the amended definition of a derivative and related bifurcation guidance upon issuance of the final Statement. SPEs that are considered qualifying under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, that would no longer be qualifying after applying Statement 133, would be required to disclose in financial statements issued after the issuance of the amendment to Statement 133 the amount of assets and liabilities that are currently off-balance-sheet in those structures that would not qualify as qualifying SPEs if both Statements 133 and 140 were applied absent the grandfathering provision.

The Board decided that the comment period for the proposed Statement will be 60 days.

The Board also decided that transition for entities applying the amended definition of a derivative would be as follows: Entities that had not accounted for a contract as a derivative in its entirety or had not bifurcated an embedded derivative but is required to do so under the proposed Statement would be required to account for the effects of initially complying with the proposed Statement prospectively for all existing contracts as of the effective date of the proposed Statement and for all future transactions. Entities that had previously accounted for a contract as a derivative instrument that would not be accounted for as a derivative instrument under the proposed Statement would not change that accounting treatment.

The Board did not object to the staff posting on the FASB website, concurrent with the Exposure Draft, the five related Statement 133 Implementation Issues that were initially posted for comment in October 2001, and a new Statement 133 Implementation Issue, Statement 133 Implementation Issue No. BX, "Bifurcation of Embedded Credit Derivatives." The Board also did not object to the staff posting on the FASB website, the draft questions and answers related to the application of certain provisions of Statement 140, subject to editorial revisions.