Action Alert No. 02-01
January 2, 2002



Wednesday, January 9, 2002, 9:30 a.m.

  1. Financial instruments: measuring at fair value. The Board will discuss fair values of financial instruments that provide settlement options and that are exchanged in portfolios at prices that cannot be approximated by conventional option-pricing models. Some examples that will be discussed are residential mortgage loans and loan commitments, credit card contracts and the related receivables, and deposit liabilities.
  2. Business combinations: purchase method procedures. The Board will discuss the measurement date for the market price of acquirer securities issued in a business combination. The Board also will discuss the determination of the date of acquisition in a business combination.
  3. Potential new agenda projects and other initiatives. The Board will discuss the following:
    1. A proposed project on disclosure about intangible assets
    2. A draft of a proposal for a major project on issues related to the recognition of revenues and liabilities
    3. Potential projects that could be undertaken to address the complexity and retrievability of the accounting literature.
  4. Open discussion. If necessary, the Board will allow time to discuss minor issues with staff members on technical projects or administrative matters. Those discussions are held following regular Board meetings as topics come up.



Wednesday, January 9, 2002, 9:30 a.m. to approximately 11:30 a.m.

To monitor the discussion by telephone, interested individuals can call 1-800-846-4717. You will be charged $.75 per minute and VISA, MasterCard, American Express, or Discover Card is required. Questions about the telephone hookup can be directed to 203-847-0700, extension 389.

Handouts distributed to the audience at a telephone-broadcasted meeting, if any, can be obtained by fax-on-demand one-half hour before the start of the meeting by calling 203-847-0700, menu item 14. Once you have pressed 14, press option 2, and then press 658 to receive the audience handout.


The Board Actions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public hearings, and through other communication channels. Decisions become final only after a formal written ballot to issue a final Statement or Interpretation.

December 19, 2001 Board Meeting

Financial instruments: derivatives implementation. The Board discussed the application of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to loan commitments and other off-balance-sheet credit arrangements. The Board decided not to finalize the tentative guidance in Statement 133 Implementation Issue No. C13, "When a Loan Commitment Is Included in the Scope of Statement 133." Instead, the Board decided to adopt an alternative approach that would require evaluation of loan commitments under Statement 133’s characteristic-based definition of a derivative. For loan commitments that meet the definition of a derivative, the Board decided to provide a scope exception for the holder of the commitment (that is, the potential borrower under the arrangement), such that the holder would not be required to account for its loan commitment contract as a derivative. The Board decided that the staff should post on the FASB website for a 35-day comment period 2 tentative derivatives implementation issues related to the application of Statement 133’s definition of a derivative to loan commitments and other credit arrangements.

The Board did not object to the staff’s recommendation to revise Statement 133 Implementation Issue No. C15, "Normal Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity." The revision replaces the quantitative criterion for determining when a power purchase or sales agreement qualifies for the normal purchases and normal sales exception with a qualitative criterion, while maintaining the Board’s original intent that the exception provided by this Implementation Issue be extended only to capacity contracts for the purchase or sale of electricity.

The Board also decided not to object to the staff’s finalizing guidance for the following two Statement 133 Implementation Issues:

Issue B34


Period-Certain Plus Life-Contingent Variable-Payout Annuity Contracts with a Guaranteed Minimum Level of Periodic Payments

Issue J19


Application of the Normal Purchases and Normal Sales Exception on Initial Adoption to Certain Compound Derivatives.

Financial instruments: measuring at fair value. The Board discussed conceptual questions about measuring financial instruments at fair value. The Board reached the following decisions:

  • Fair value for financial instruments should be an exit price. That is, the price market participants would be expected to pay or receive at the time a financial instrument is sold, exchanged, or settled.
  • Commissions paid on acquisitions, originations, sales, incurrence, or settlements of financial instruments should be reported as expenses in the period in which they are incurred. They should not be included in the determination of fair value.
  • If bid and asked prices are quoted for a particular instrument traded in an active market and those prices are firm offers to buy or sell, the fair value of a financial instrument should be based on the midpoint of that spread.
  • The appropriate unit of measure for a group of similar, but not identical, financial instruments is the unit that would be expected to yield the highest price for assets and lowest price for liabilities in a market to which the entity has reasonable access. The incremental direct costs of sale or settlement must be considered in determining which unit of measure yields the optimum price.

The effects of changes in an entity’s own creditworthiness and credit risk premium should be included in determining the fair value of that entity’s liabilities.

Not-for-profit combinations. The Board discussed the method of accounting for business combinations of mutual enterprises. It decided that business combinations of mutual enterprises should be accounted for using the purchase method of accounting as prescribed in FASB Statement No. 141, Business Combinations.

December 20, 2001 Board Meeting

Consolidations: policy. The Board, in order to acquire a common understanding about the facts and circumstances involved, discussed a group of cases that illustrated various types of consolidation policy issues. That common understanding of the facts and circumstances will facilitate discussion of the issues illustrated by those cases at a later date. The meeting was educational and no decisions were reached.


On January 4, 2002, the FASB will publish an updated version of Accounting for Derivative Instruments and Hedging Activities, FASB Statement No. 133 as amended and interpreted, which also incorporates all cleared Implementation Issues as of December 10, 2001. To order, call 1-800-748-0659.

Special price for FASB Comprehensive Plan subscribers: $16.00 each copy

Regular prices: Members* $30.00; nonmembers $37.50

*Members of the Financial Accounting Foundation, Accounting Research Association of the AICPA, and academicians.


The following is a list of open meetings tentatively scheduled through February. Because schedules may change, please check the FASB calendar of events on this website before finalizing your plans. Revisions to this list since the last issue of Action Alert are highlighted in bold.

Wednesday, January 16, 2002—FASB Board Meeting

Wednesday, January 23, 2002—FASB Board Meeting

Thursday, January 24, 2002—Emerging Issues Task Force Meeting

Wednesday, January 30, 2002—FASB Board Meeting

Wednesday, February 6, 2002—FASB Board Meeting

Wednesday, February 13, 2002—FASB Board Meeting

Wednesday, February 20, 2002—FASB Board Meeting

Wednesday, February 27, 2002—FASB Board Meeting

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