Derivatives Implementation Group
Summary of March 21,
2001 Board Meeting Discussion on Statement 133 Implementation
Issues
Financial instruments: derivatives
implementation. At its March 21, 2001 meeting, the Board
decided not to object to the staff's issuing guidance in a
question-and-answer format (Q&A) for the following twenty-two
Implementation Issues regarding FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities:
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Issue A17
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Contracts That Provide for Net Share Settlement
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Issue B32
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Application of Paragraph 15(a) regarding Substantial
Party to a Contract
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Issue B33
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Applicability of Paragraph 15 to Embedded Foreign
Currency Options
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Issue C10
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Can Option Contracts Qualify for the Normal Purchases
and Normal Sales Exception
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Issue C11
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Interpretation of Clearly and Closely Related
in Contracts That Qualify for the Normal Purchases and Normal Sales
Exception
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Issue C12
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Interpreting the Normal Purchases and Normal Sales
Exception as an Election
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Issue E14
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The Shortcut Method and the Provisions That Permit
the Debtor or Creditor to Require Prepayment
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Issue E15
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Continuing the Shortcut Method after a Purchase
Business Combination
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Issue E16
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Application of the Shortcut Method for an Interest
Rate Swap-in-Arrears
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Issue E17
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Designating a Normal Purchase Contract or a Normal
Sales Contract as the Hedged Item in a Fair Value Hedge or Cash
Flow Hedge
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Issue E18
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Designating A Zero-Cost Collar with Different
Notional Amounts As a Hedging Instrument
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Issue E19
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Methods of Assessing Hedge Effectiveness When Options
Are Designated as the Hedging Instrument
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Issue F8
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Hedging Mortgage Servicing Right Assets Using Preset
Hedge Coverage Ratios
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Issue G16
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Designating the Hedged Forecasted Transaction When
Its Timing Involves Some Uncertainty within a Range
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Issue G17
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Impact on Accumulated Other Comprehensive Income of
Issuing Debt with a Term That Is Shorter Than Originally
Forecasted
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Issue G18
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Impact on Accumulated Other Comprehensive Income from
Issuing Debt at a Date That Is Not the Same as Originally
Forecasted
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Issue G19
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Hedging Interest Rate Risk for the Forecasted
Issuances of Fixed-Rate Debt Arising from a Rollover Strategy
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Issue H14
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Offsetting a Subsidiary's Exposure on a Net Basis in
Which Neither Leg of the Third-Party Position Is in the Treasury
Center's Functional Currency
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Issue H15
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Hedging a Forecasted Foreign Currency Transaction
That Becomes Recognized
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Issue J15
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Pre-Existing Hedge Ineffectiveness of a
Derivative
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Issue J16
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Effect of a Transition Adjustment Included in
Accumulated Other Comprehensive Income on the Application of
Paragraph 30
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Issue J17
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Is a Pre-Existing Foreign Currency Hedge Related to
an Intercompany "Firm Commitment" a Fair-Value-Type Hedge or a
Cash-Flow-Type Hedge?
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The Board decided to modify the guidance in
Implementation Issue C10 to indicate that a forward contract that
contains optionality features that would result in the contract in
its entirety being considered a net written option under paragraph
20(c)(1) of Statement 133 may qualify for the normal purchases and
sales exception if the optionality relates only to the price of the
asset to be delivered under the purchase or sale contract. However,
such contracts containing optionality that could result in
modifying the quantity of the asset to be delivered under the
purchase or sale contract may not qualify for the normal purchases
and sales exception.
The tentative guidance in the above twenty-two
Implementation Issues was the outgrowth of discussions by the
Derivatives Implementation Group (DIG) and had been posted on the
FASB website since January 21, 2001.
The Board also discussed Derivatives Implementation
Group Agenda Item No. 14-3, "Normal Purchases and Sales Exception
in the Electric Industry for Capacity Contracts Including Contracts
That May Have Some Characteristics of Purchased and Written
Options." The Board's discussion indicated insufficient support for
creating a special exception that would enable option contracts for
the purchase or sale of electricity to be eligible to qualify for
the normal purchases and sales exception.
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