FASB Summary of June 27, 2001 Board Meeting Discussion

FASB: Summary of June 27, 2001 Board Meeting Discussion

Derivatives Implementation Group

Summary of June 27, 2001 Board Meeting Discussion on Statement 133 Implementation Issues

Financial instruments: derivatives implementation. At its June 27, 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 eight Implementation Issues regarding FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities:

Issue C15

Normal Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity

Issue E20

The Strike Price for Determining When a Swap Contains Mirror-Image Call Provision

Issue F10

Definition of Firm Commitment in Relation to Long-Term Supply Contracts with Embedded Price Caps or Floors

Issue G20

Assessing and Measuring the Effectiveness of an Option Used in a Cash Flow Hedge

Issue G21

Determination of the Appropriate Hypothetical Derivative for Floating-Rate Debt That Is Prepayable at Par at Each Interest Reset Date

Issue I2

Near-Term Reclassification of Gains and Losses That Are Reported in Accumulated Other Comprehensive Income

Issue J18

Foreign-Currency-Denominated Transactions Accounted for under EITF Issue 88-18

Issue K5

Transition Provisions for Applying the Guidance in Statement 133 Implementation Issues

The Board suggested that Statement 133 Implementation Issue No. C14, "Normal Purchases and Normal Sales Exception for Electricity Contracts Subject to Being Booked Out," be deleted from the website because it is no longer needed for electricity contracts in view of the guidance in Implementation Issue C15. The Board also did not object to a revision of Statement 133 Implementation Issue No. A14, "Derivative Treatment of Stock Purchase Warrant for Shares Where Sale or Transfer Is Restricted," to avoid a misinterpretation of its scope. Similarly, the Board did not object to a modification of the scope of the guidance in Statement 133 Implementation Issue No. C10, "Can Option Contracts and Forward Contracts with Optionality Features Qualify for the Normal Purchases and Normal Sales Exception," to exclude those option contracts that qualify for the normal purchases and normal sales exception under Implementation Issue C15. The Board also discussed the staff's proposed modification of the tentative guidance in Statement 133 Implementation Issue No. B31, "Accounting for Purchases of Life Insurance," which the staff planned to circulate to the members of the Derivatives Implementation Group. The Board suggested that the staff post the revised tentative conclusions for Implementation Issue B31 on the website on June 29, 2001 and bring it for clearance in mid-July 2001.