Derivatives Implementation Group
Summary of April 26,
2000 Board Meeting Discussion on Statement 133 Implementation
Issues
Derivatives and hedging-proposed amendment of
Statement 133. The Board continued its redeliberations of the
proposed Statement, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, and made the
following decisions:
- The Board decided to permit any recognized
foreign-currency-denominated asset or liability that generates a
foreign currency transaction gain or loss under the provisions of
FASB Statement No. 52, Foreign Currency Translation, to be
designated as a hedged item.
- The Board decided that a foreign currency derivative instrument
that has been entered into with another member of a consolidated
group cannot be a hedging instrument in a fair value or cash flow
hedge of a recognized foreign-currency-denominated asset or
liability in the consolidated financial statements. That
prohibition is consistent with paragraphs 40A and 40B of the
Exposure Draft, which limits the netting of exposures to foreign
currency cash flow hedges of forecasted borrowings, purchases,
sales, or unrecognized firm commitments.
- The Board decided not to modify the transition provisions of
Statement 133 to permit hedge accounting for intracompany
derivatives designated as hedging instruments prior to January 1,
1999.
- The Board decided that a series of planned contracts that
ultimately end in delivery of assets purchased but that include
interim net settlements or a bookout transaction do not qualify for
the normal purchases and normal sales exception.
- The Board decided
The term unrelated in the
second sentence of the amended paragraph 10(b) of Statement 133
will be replaced by the phrase that is not clearly and closely
related.
The term similar in the fourth sentence of the
amended paragraph 10(b) of Statement 133 will be clarified to
reflect that a contract designated as a normal purchase or normal
sale contract would not be considered similar to a contract not
designated as a normal purchase or normal sale contract.
The Board clarified that the documentation
requirements for normal purchases and normal sales contracts may
apply to groups of similar contracts and not just individual
contracts.
- The Board discussed how an entity should determine the change
in a hedged item's fair value attributable to changes in the
benchmark interest rate. Three methods were discussed but no
decisions were made. The Board will gather more information about
the issue from the Derivatives Implementation Group and will
continue the discussion at the May 2, 2000 Board meeting.
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