FASB Summary of April 30, 2003 Board Meeting Discussion

FASB: Summary of April 30, 2003 Board Meeting Discussion

Derivatives Implementation Group

Summary of April 30, 2003 Board Meeting Discussion on Statement 133 Implementation Issues

Financial instruments: derivatives implementation. At its April 30, 2003 meeting, the Board did not object to the staff’s proposal to revise the guidance in Statement 133 Implementation Issue No. A9, “Prepaid Interest Rate Swaps,” to conclude that a prepaid interest rate swap should be considered as a hybrid instrument that contains an embedded derivative that warrants separate accounting rather than as a derivative instrument in its entirety.

The Board suggested that the effective date of the revised guidance be the first day of the first fiscal quarter beginning after the date of posting of the cleared guidance but that the guidance be applied prospectively to all contracts entered into on or after the date the guidance is cleared by the Board at a public meeting. The transition adjustment would be reported as a cumulative-effect-type adjustment for the reporting period that includes the effective date.

The Board also agreed with the staff’s recommendation to post on the FASB website the proposed revisions as tentative guidance over a 35-day comment period in order to notify constituents and obtain their input. (The proposed revised guidance has been assigned a new number and was posted to the website on May 1, 2003 as Implementation Issue A23. Comments are due June 5, 2003.)