Summary of April 19, 2000 Board Meeting Discussion

Summary of April 19, 2000 Board Meeting Discussion

Summary of April 19, 2000 Board Meeting Discussion on Statement 133 Implementation Issues

Derivatives and hedging-proposed amendment of Statement 133. The Board made the following decisions related to issues raised in comment letters received on the FASB Exposure Draft, Accounting for Certain Derivative Instruments and Certain Hedging Activities.

The Board decided to remove the prohibition contained in paragraphs 4(b)(7) and 4(c)(6) of the Exposure Draft that "the benchmark interest rate being hedged in a hedge of interest rate risk should not reflect greater credit risk than is inherent in the hedged item." The Board also decided to (1) not remove the requirement in paragraph 21(f) of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, that an entity consider prepayment risk in a hedge of interest rate risk, (2) not specify a method for calculating the changes in fair value of the hedged item in a hedge of interest rate risk, but to defer consideration of potential methods to the DIG process, and (3) not permit additional indexes to be designated as the hedged risk in a hedge of interest rate risk beyond the benchmark interest rates contained in the Exposure Draft.

The Board decided to retain the prohibition in Statement 133 against using nonderivative instruments in hedging a foreign-currency-
denominated available-for-sale security and not expand the use of the shortcut method to hedges of recognized foreign-currency-
denominated debt instruments.

Finally, the Board decided not to reconsider, as part of the current project, amending Statement 133 for the accounting for the time value component of a purchased option and to allow partial-term hedging.