Summary of April 19,
2000 Board Meeting Discussion on Statement 133 Implementation
Issues
Derivatives and hedging-proposed amendment of
Statement 133. The Board made the following decisions related
to issues raised in comment letters received on the FASB Exposure
Draft, Accounting for Certain Derivative Instruments and Certain
Hedging Activities.
The Board decided to remove the prohibition contained
in paragraphs 4(b)(7) and 4(c)(6) of the Exposure Draft that "the
benchmark interest rate being hedged in a hedge of interest rate
risk should not reflect greater credit risk than is inherent in the
hedged item." The Board also decided to (1) not remove the
requirement in paragraph 21(f) of FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities, that an entity consider prepayment risk in a hedge
of interest rate risk, (2) not specify a method for calculating the
changes in fair value of the hedged item in a hedge of interest
rate risk, but to defer consideration of potential methods to the
DIG process, and (3) not permit additional indexes to be designated
as the hedged risk in a hedge of interest rate risk beyond the
benchmark interest rates contained in the Exposure Draft.
The Board decided to retain the prohibition in
Statement 133 against using nonderivative instruments in hedging a
foreign-currency-
denominated available-for-sale security and not expand the use of
the shortcut method to hedges of recognized foreign-currency-
denominated debt instruments.
Finally, the Board decided not to reconsider, as part
of the current project, amending Statement 133 for the accounting
for the time value component of a purchased option and to allow
partial-term hedging.
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