FASB Disclosures Interaction of the Disclosure Requirements of Statement 133 and Statement 47

FASB: Disclosures: Interaction of the Disclosure Requirements of Statement 133 and Statement 47

Derivatives Implementation Group

Statement 133 Implementation Issue No. I1

Title: Disclosures: Interaction of the Disclosure Requirements of Statement 133 and Statement 47
Paragraph references: 44, 44A–44E, 45
Date cleared by Board: May 17, 2000
Date revision posted to website: April 21, 2008
Affected by:: FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities
Revised March 19, 2008

QUESTION

Does Statement 133 effectively supersede the disclosure requirements of FASB Statement No. 47, Disclosure of Long-Term Obligations, for an unconditional purchase obligation that is subject to the requirements of Statement 47 but accounted for as a derivative under Statement 133 and, thus, subject to the disclosure requirements of Statement 133?

BACKGROUND

Paragraph 6 of Statement 47 defines unconditional purchase obligation as "...an obligation to transfer funds in the future for fixed or minimum amounts or quantities of goods or services at fixed or minimum prices (for example, as in take-or-pay contracts or throughput contracts)." Paragraph 7 of Statement 47 requires an obligor to make certain disclosures about unconditional purchase obligations that have the characteristics specified in paragraph 6 of Statement 47 and have not been recognized on the balance sheet. Separately, paragraph 10 of Statement 47 requires an obligor to make other less extensive disclosures about unconditional purchase obligations that have the characteristics specified in paragraph 6 of Statement 47 and have been recognized on the balance sheet.

Certain unconditional purchase obligations (for example, a power purchase agreement entered into in connection with the financing of a generation facility) subject to the disclosure requirements of Statement 47 may also meet the definition of derivative instrument in paragraphs 6-9 of Statement 133 and are accounted for as derivatives at fair value in the balance sheet. (The determination of whether an unconditional purchase obligation meets the definition of a derivative instrument is beyond the scope of this issue.)

Statement 133 requires certain disclosures by an entity that holds or issues derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments). Paragraphs 44 through 45 of Statement 133 contain the disclosure requirements.

RESPONSE

No. If an unconditional purchase obligation is subject to the requirements of both Statement 47 and Statement 133, the entity must comply with the disclosure requirements of each Statement, including paragraph 7 of Statement 47, as discussed below.

If an unconditional purchase obligation meets the definition of a derivative instrument, it will be recorded on the purchaser's balance sheet at fair value under Statement 133. However, that recognition at fair value is insufficient to exempt the unconditional purchase obligation from the disclosure requirements of paragraph 7 of Statement 47, whose primary objective is to disclose the fixed and determinable amount of the gross obligation and provide information on the significance of those obligations. Therefore, since the accounting and disclosure requirements of Statement 47 and Statement 133 are each based on different objectives, the purchaser must comply with the disclosure requirements of both paragraph 7 of Statement 47 and paragraphs 44 through 45 of Statement 133 for an unconditional purchase obligation that meets the definition of a derivative instrument.

The above response has been authored by the FASB staff and represents the staff's views, although the Board has discussed the above response at a public meeting and chosen not to object to dissemination of that response. Official positions of the FASB are determined only after extensive due process and deliberation.