FASB Summary of March 31, 1999 Board Meeting Discussion

FASB: Summary of March 31, 1999 Board Meeting Discussion

Derivatives Implementation Group

Summary of March 31, 1999 Board Meeting Discussion on Statement 133 Implementation Issues

The Board discussed the staff's tentative guidance for the following six implementation issues regarding FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities:

  1. Issue No. B3, "Investor's Accounting for a Put or Call Option Attached to a Debt Instrument Contemporaneously with or Subsequent to Its Issuance"

  2. Issue No. C6, "Derivative Instruments Related to Assets Transferred in Financing Transactions"

  3. Issue No. E2, "Combinations of Options"

  4. Issue No. E3, "Hedging with Intercompany Derivatives"

  5. Issue No. G2, "Hedged Transactions That Arise from Gross Settlement of a Derivative ('All-in-One' Hedges)"

  6. Issue No. G3, "Discontinuation of a Cash Flow Hedge"

The tentative guidance in the above six issues was based on the results of discussion by the Derivatives Implementation Group and had been posted on the FASB web site since January 1999.

The Board decided not to object to the staff's issuing guidance in a question-and-answer format (Q&A) for the first five implementation issues listed above. However, the Board directed that the guidance on the last issue, Issue G3, be partially modified. The Board did not object to the tentative guidance that, if it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period but will occur within a specified additional period of time thereafter, the derivative's gain or loss should continue to be reported in accumulated other comprehensive income. However, the Board directed that the specified additional period of time be modified. The tentative guidance had specified that the additional period of time was equal to 10 percent of the number of days included in the originally specified time period (beginning on the date of the inception of the hedge), not to exceed a maximum of 60 additional days. The Board decided that that additional period of time should be a fixed period of two months beyond the end of the originally specified time period that was documented at the inception of the cash flow hedge.

The Board also decided that the FASB web site should indicate that constituents who wish to submit comments regarding the staff's tentative conclusions on implementation issues should submit those comments within 35 days after they have been posted on the web site to ensure an adequate time for the Board to consider the constituents' views and concerns prior to the clearance process. Each issue that has not yet been cleared by the Board will indicate on the web site the date by which comments should be submitted.