FASB Summary of March 21, 2001 Board Meeting Discussion

FASB: Summary of March 21, 2001 Board Meeting Discussion

Derivatives Implementation Group

Summary of March 21, 2001 Board Meeting Discussion on Statement 133 Implementation Issues

Financial instruments: derivatives implementation. At its March 21, 2001 meeting, the Board decided not to object to the staff's issuing guidance in a question-and-answer format (Q&A) for the following twenty-two Implementation Issues regarding FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities:

Issue A17

Contracts That Provide for Net Share Settlement

Issue B32

Application of Paragraph 15(a) regarding Substantial Party to a Contract

Issue B33

Applicability of Paragraph 15 to Embedded Foreign Currency Options

Issue C10

Can Option Contracts Qualify for the Normal Purchases and Normal Sales Exception

Issue C11

Interpretation of Clearly and Closely Related in Contracts That Qualify for the Normal Purchases and Normal Sales Exception

Issue C12

Interpreting the Normal Purchases and Normal Sales Exception as an Election

Issue E14

The Shortcut Method and the Provisions That Permit the Debtor or Creditor to Require Prepayment

Issue E15

Continuing the Shortcut Method after a Purchase Business Combination

Issue E16

Application of the Shortcut Method for an Interest Rate Swap-in-Arrears

Issue E17

Designating a Normal Purchase Contract or a Normal Sales Contract as the Hedged Item in a Fair Value Hedge or Cash Flow Hedge

Issue E18

Designating A Zero-Cost Collar with Different Notional Amounts As a Hedging Instrument

Issue E19

Methods of Assessing Hedge Effectiveness When Options Are Designated as the Hedging Instrument

Issue F8

Hedging Mortgage Servicing Right Assets Using Preset Hedge Coverage Ratios

Issue G16

Designating the Hedged Forecasted Transaction When Its Timing Involves Some Uncertainty within a Range

Issue G17

Impact on Accumulated Other Comprehensive Income of Issuing Debt with a Term That Is Shorter Than Originally Forecasted

Issue G18

Impact on Accumulated Other Comprehensive Income from Issuing Debt at a Date That Is Not the Same as Originally Forecasted

Issue G19

Hedging Interest Rate Risk for the Forecasted Issuances of Fixed-Rate Debt Arising from a Rollover Strategy

Issue H14

Offsetting a Subsidiary's Exposure on a Net Basis in Which Neither Leg of the Third-Party Position Is in the Treasury Center's Functional Currency

Issue H15

Hedging a Forecasted Foreign Currency Transaction That Becomes Recognized

Issue J15

Pre-Existing Hedge Ineffectiveness of a Derivative

Issue J16

Effect of a Transition Adjustment Included in Accumulated Other Comprehensive Income on the Application of Paragraph 30

Issue J17

Is a Pre-Existing Foreign Currency Hedge Related to an Intercompany "Firm Commitment" a Fair-Value-Type Hedge or a Cash-Flow-Type Hedge?


The Board decided to modify the guidance in Implementation Issue C10 to indicate that a forward contract that contains optionality features that would result in the contract in its entirety being considered a net written option under paragraph 20(c)(1) of Statement 133 may qualify for the normal purchases and sales exception if the optionality relates only to the price of the asset to be delivered under the purchase or sale contract. However, such contracts containing optionality that could result in modifying the quantity of the asset to be delivered under the purchase or sale contract may not qualify for the normal purchases and sales exception.

The tentative guidance in the above twenty-two Implementation Issues was the outgrowth of discussions by the Derivatives Implementation Group (DIG) and had been posted on the FASB website since January 21, 2001.

The Board also discussed Derivatives Implementation Group Agenda Item No. 14-3, "Normal Purchases and Sales Exception in the Electric Industry for Capacity Contracts Including Contracts That May Have Some Characteristics of Purchased and Written Options." The Board's discussion indicated insufficient support for creating a special exception that would enable option contracts for the purchase or sale of electricity to be eligible to qualify for the normal purchases and sales exception.