FASB Summary of November 5, 2003 Board Meeting Discussion

FASB: Summary of November 5, 2003 Board Meeting Discussion

Derivatives Implementation Group

Summary of November 5, 2003 Board Meeting Discussion on Statement 133 Implementation Issues

Financial instruments: derivatives implementation. The Board discussed the comments received on Statement 133 Implementation Issue No. G24, “Accounting for the Discontinuance of Hedging Relationships Arising from Changes in Consolidation Practices Due to Initially Applying FASB Interpretation No. 46.” The Board unanimously agreed with the staff’s proposed revisions as well as with a Board member recommendation to relax the requirements for use of the shortcut method if a change in consolidation practices due to the initial application of Interpretation 46 causes the consolidated entity to discontinue a preexisting hedging relationship for which effectiveness was being assessed under the shortcut method in paragraph 68 of Statement 133. In those circumstances, if the company contemporaneously designates a new hedging relationship, that new relationship can qualify for the shortcut method provided certain criteria are met, even though the fair value of the hedging interest rate swap is not zero at the inception of the new hedging relationship.

The Board did not object to the staff’s posting the guidance released for comment in Implementation Issue G24, as revised consistent with the above decisions, on the FASB website as cleared guidance. However the guidance was renumbered as Implementation Issue E22 and retitled “Accounting for the Discontinuance of Hedging Relationships Arising from Changes in Consolidation Practices Related to Applying FASB Interpretation No. 46.” The number was changed because the guidance addresses fair value hedges as well as cash flow hedges. Section G of the implementation guidance is focused only on the latter.

The Board also discussed a clarifying revision to Statement 133 Implementation Issue No. C15, “Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity.” The revision clarified that the nine characteristics listed in Implementation Issue C15 are relevant only for option contracts and not for forward contracts. The Board did not object to the staff’s proposed revisions to the cleared guidance in Implementation Issue C15.

Implementation Issue E22 and the revised Implementation Issue C15 were posted on the FASB website on November 10, 2003.