FASB Summary of December 6, 2000 Board Meeting Discussion

FASB: Summary of December 6, 2000 Board Meeting Discussion

Derivatives Implementation Group

Summary of December 6, 2000 Board Meeting Discussion on Statement 133 Implementation Issues

Financial instruments: derivatives implementation. The Board decided not to object to the staff's issuing guidance in a question-and-answer format (Q&A) for the following 17 implementation Issues regarding FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities:

  • Issue A13, "Whether Settlement Provisions That Require a Structured Payout Constitute Net Settlement under Paragraph 9(a)"

  • Issue A14, "Derivative Treatment of Stock Purchase Warrant for Shares Where Sale or Transfer Is Restricted"

  • Issue A15, "Effect of Offsetting Contracts on the Existence of a Market Mechanism That Facilitates Net Settlement"

  • Issue B9, "Clearly and Closely Related Criteria for Market Adjusted Value Prepayment Options"

  • Issue B22, "Whether the Terms of a Separated Option-Based Embedded Derivative Must Produce a Zero Fair Value (Other than Time Value)"

  • Issue B23, "Terms of a Separated Non-Option Embedded Derivative When the Holder Has Acquired the Hybrid Instrument Subsequent to Its Inception"

  • Issue B24, "Interaction of the Requirements of EITF Issue No. 86-28 and Statement 133 Related to Structured Notes Containing Embedded Derivatives

  • Issue E11, "Hedged Exposure Is Limited but Derivative's Exposure Is Not"

  • Issue E12, "How Paragraph 68(c) Applies to an Interest Rate Swap That Trades at an Interim Date"

  • Issue F6, "Concurrent Offsetting Matching Swaps and Use of One as Hedging Instrument

  • Issue F7, "Application of Written-Option Test in Paragraph 20(c) to Collar-Based Hedging Relationships"

  • Issue G12, "Use of Shortcut Method for Cash Flow Hedge of Variable-Rate Operating Lease

  • Issue G14, "Assessing the Probability of the Forecasted Acquisition of a Marketable Security Hedged by a Purchased Option or Warrant"

  • Issue G15, "Combinations of Options Involving One Written Option and Two Purchased Options"

  • Issue J13, "Indexed Debt Hedging Equity Investment"

  • Issue J14, "Using Either the Fair Value or Cash Flow Hedging Model to Hedge a Structured Note"

  • Issue K4, "Income Statement Classification of Hedge Ineffectiveness and the Component of a Derivative's Gain or Loss Excluded from the Assessment of Hedge Effectiveness"

The tentative guidance for the above 17 Issues was developed based on the results of discussion by the Derivative Implementation Group (DIG) and had been posted on the FASB web site for comment for at least three months.

In addition to the 17 issues listed above, the Board discussed editorial changes to Statement 133 Implementation Issues No. A6, "Notional Amounts of Commodity Contracts" and No. J4, "Transition Adjustment for Option Contracts Used in a Cash-Flow-Type Hedge."

The Board deferred clearance on three issues, Statement 133 Implementation Issues No. H8, "Measuring the Amount of Ineffectiveness in a Net Investment Hedge," No. H9, "Hedging a Net Investment with a Compound Derivative That Incorporates Exposure to Multiple Risks," and No. J11, "Transition Adjustment for Net Investment Hedges," for further review by the staff. Those issues will be brought back to the Board for its consideration before the end of this year.