FASB Exposure Draft Amends Definition of a Derivative and Statement 133 to Provide for More Consistent Accounting

Norwalk, CT, May 1, 2002—Today the Financial Accounting Standards Board (FASB) issued an Exposure Draft, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The Exposure Draft amends Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to clarify the definition of a derivative. A copy of the Exposure Draft is available on the FASB’s website at The comment period concludes on July 1, 2002.


In connection with Statement 133 Implementation Issue No. D1, "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets," the Board addressed issues related to the accounting for beneficial interests in securitized financial assets, such as beneficial interests in securitized credit card receivables. In resolving those issues, the FASB decided that an amendment was needed to clarify the definition of a derivative, as set forth in Statement 133.

The purpose of the Exposure Draft is to improve financial reporting by requiring that financial contracts with comparable characteristics be accounted for in the same way. The Statement would clarify under what circumstances a financial contract—either an option-based or non-option-based contract—with an initial net investment would meet the characteristic of a derivative discussed in paragraph 6(b) of Statement 133. The FASB believes the proposed change will produce more consistent reporting of financial contracts as either derivatives or hybrid financial instruments.

The proposed effective date for the accounting change is the first day of the first fiscal quarter beginning after November 15, 2002, which, for calendar year end companies, will be January 1, 2003.

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