Derivatives Implementation Group
Summary of March 31, 2004 Board Meeting Discussion on Statement 133 Implementation Issues
Beneficial interests in securitized financial assets. The Board discussed several alternative approaches to accounting for beneficial interests and decided to consider the following two alternatives in more detail at a future meeting:
- Require all beneficial interests to be accounted for at fair value, whether they are purchased by an investor or retained by a transferor
- Permit an enterprise to choose to account for all beneficial interests at fair value or to:
- Account for purchased beneficial interests under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, with any identified derivatives, based on an analysis of the cash flows of the purchased beneficial interests, being accounted for as derivatives and the host contract being accounted for under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities
- Account for retained beneficial interests under Statement 133 with any identified derivatives, based on an analysis of the cash flows of the assets in the securitization transaction, being accounted for as derivatives and the host contract and other assets being accounted for under applicable GAAP.
The Board also directed the staff to investigate accounting for retained beneficial interests at fair value and separately accounting for an embedded credit liability in a securitization transaction at fair value.
Loan commitments. The Board decided to remove the loan commitments project from its technical agenda. The principal motivating factor for the Board's decision last quarter to undertake a separate project on loan commitments was the significant diversity in practice existing among issuers of loan commitments, both in determining the fair value of loan commitments that must be accounted for as derivatives and in whether such commitments can ever be reported by the issuer as assets. The Board expects that the SEC's issuance of Staff Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan Commitments, will significantly reduce that diversity in practice; therefore, the Board decided to remove the project from its agenda.
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