FASB Summary of January 18, 2000 Board Meeting Discussion

FASB: Summary of January 18, 2000 Board Meeting Discussion

Derivatives Implementation Group

Summary of January 18, 2000 Board Meeting Discussion on Statement 133 Implementation Issues

Derivatives and hedging-possible amendment of Statement 133. The Board discussed issues related to the accounting for changes in the time value component of a purchased option designated as the hedging instrument in a hedging relationship. The Board also discussed issues related to the guidance in Statement 133 Implementation Issue E1, "Hedging the Risk-Free Interest Rate."

The Board decided not to change the requirements of Statement 133 to permit the time value component of a purchased option to be amortized to expense by a systematic and rational method over the contractual life of the option contract.

The Board made the following decisions on the issues related to the guidance in Statement 133 Implementation Issue E1:

  • The Board decided that sector spread should be encompassed in credit risk (identified as the obligor's creditworthiness in paragraph 21(f) of Statement 133) rather than in market interest rate risk. As a result an entity would be able to designate as the hedged risk changes in fair value attributable to changes in the risk-free rate of interest. That change would apply to both fair value hedges and cash flow hedges.

  • The Board decided not to permit designation of the rate encompassed in LIBOR or similar indexes as the hedged risk in the hedge of interest rate risk.