FASB Summary of April 26, 2000 Board Meeting Discussion
Derivatives Implementation Group
Summary of April 26, 2000 Board Meeting Discussion on Statement 133 Implementation Issues
Derivatives and hedging-proposed amendment of Statement 133. The Board continued its redeliberations of the proposed Statement, Accounting for Certain Derivative Instruments and Certain Hedging Activities, and made the following decisions:
- The Board decided to permit any recognized foreign-currency-denominated asset or liability that generates a foreign currency transaction gain or loss under the provisions of FASB Statement No. 52, Foreign Currency Translation, to be designated as a hedged item.
- The Board decided that a foreign currency derivative instrument that has been entered into with another member of a consolidated group cannot be a hedging instrument in a fair value or cash flow hedge of a recognized foreign-currency-denominated asset or liability in the consolidated financial statements. That prohibition is consistent with paragraphs 40A and 40B of the Exposure Draft, which limits the netting of exposures to foreign currency cash flow hedges of forecasted borrowings, purchases, sales, or unrecognized firm commitments.
- The Board decided not to modify the transition provisions of Statement 133 to permit hedge accounting for intracompany derivatives designated as hedging instruments prior to January 1, 1999.
- The Board decided that a series of planned contracts that ultimately end in delivery of assets purchased but that include interim net settlements or a bookout transaction do not qualify for the normal purchases and normal sales exception.
- The Board decided
The term unrelated in the second sentence of the amended paragraph 10(b) of Statement 133 will be replaced by the phrase that is not clearly and closely related.
The term similar in the fourth sentence of the amended paragraph 10(b) of Statement 133 will be clarified to reflect that a contract designated as a normal purchase or normal sale contract would not be considered similar to a contract not designated as a normal purchase or normal sale contract.
The Board clarified that the documentation requirements for normal purchases and normal sales contracts may apply to groups of similar contracts and not just individual contracts.
- The Board discussed how an entity should determine the change in a hedged item's fair value attributable to changes in the benchmark interest rate. Three methods were discussed but no decisions were made. The Board will gather more information about the issue from the Derivatives Implementation Group and will continue the discussion at the May 2, 2000 Board meeting.