FASB Summary of September 11, 2002 Board Meeting Discussion

FASB: Summary of September 11, 2002 Board Meeting Discussion

Derivatives Implementation Group

Summary of September 11, 2002 Board Meeting Discussion on the Proposed Amendment to Statement 133

Financial instruments: derivatives implementation. At its September 11, 2002 meeting, the Board continued its redeliberations of issues raised in connection with the accounting for derivative instruments in the FASB Exposure Draft, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The Board decided not to go forward with the proposed revised definition of a derivative in the Exposure Draft but rather to explore alternatives that resolve the Board’s concerns relating to the definition in another manner. The Board clarified that the alternatives should (1) clarify the meaning of “an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors” in paragraph 6(b) and (2) ensure the transparency of financing or debt elements embedded in derivatives. The Board decided to allow the staff to explore the possibility of interpreting or amending FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to address an issue raised about the application of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to beneficial interests in securitization transactions.

The Board decided to (1) retain the proposed amending clarification in paragraph 68(b) relating to the shortcut method, (2) clarify the language in paragraph 10(d) to indicate that a financial guarantee must require both acceleration of the guaranteed obligations and nonpayment of that obligation, and (3) clarify that single-payment guarantees and back-to-back contracts may qualify for the exception in paragraph 10(d).