Extract
Official Releases.
FASB No. 138 ... FASB No. 139 ... Code and Bylaw Revisions ... Council Resolutions
Space considerations prevent publishing here the appendices to FASB Statement nos. 138 and 139. Since the appendices often are important to understanding FASB statements, readers are advised to obtain complete copies. For additional copies of FASB statements and/or information on applicable prices and discount rates, contact the FASB order department, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116. Telephone: 800-748-0659. Statement of Financial Accounting Standards No. 138--Accounting for Certain Derivative Instruments and Certain Hedging Activities (An amendment of FASB Statement No. 133) Introduction/1-3 Standards of Financial Accounting and Reporting: Amendments to Statement 133/4 Effective Date and Transition/5-6 Appendix A: Background Information and Basis for Conclusions/7-39 Appendix B: Amended Paragraphs of Statement 133 Marked to Show Changes Made by This Statement/40 INTRODUCTION 1. FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. This Statement addresses a limited number of issues causing implementation difficulties for numerous entities that apply Statement 133. 2. This Statement amends the accounting and reporting standards of Statement 133 for certain derivative instruments and certain hedging activities as indicated below. a. The normal purchases and normal sales exception in paragraph 10(b) may be applied to contracts that implicitly or explicitly permit net settlement, as discussed in paragraphs 9(a) and 57(c)(1), and contracts that have a market mechanism to facilitate net settlement, as discussed in paragraphs 9(b) and 57(c)(2). b. The specific risks that can be identified as the hedged risk are redefined so that in a hedge of interest rate risk, the risk of changes in the benchmark interest rate(1) would be the hedged risk. c. Recognized foreign-currency-denominated assets and liabilities for which a foreign currency transaction gain or loss is recognized in earnings under the provisions of paragraph 15 of FASB Statement No. 52, Foreign Currency Translation, may be the hedged item in fair value hedges or cash flow hedges. d. Certain intercompany derivatives may be designated as the hedging instruments in cash flow hedges of foreign currency risk in the consolidated financial statements if those intercompany derivatives are offset by unrelated third-party contracts on a net basis. 3. This Statement also amends Statement 133 for decisions made by the Board relating to the Derivatives Implementation Group (DIG) process. Certain decisions arising from the DIG process that required specific amendments to Statement 133 are incorporated in this Statement. STANDARDS OF FINANCIAL ACCOUNTING AND REPORTING Amendments to Statement 133 4. Statement 133 is amended as follows: Amendment Related to Normal Purchases and Normal Sales a. Paragraph 10(b) is replaced by the following: Normal purchases and normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold by the reporting entity over a reasonable period in the normal course of business. However, contracts that have a price based on an underlying that is not clearly and closely related to the asset being sold or purchased (such as a price in a contract for the sale of a grain commodity based in part on changes in the S&P index) or that are denominated in a foreign currency that meets neither of the criteria in paragraphs 15(a) and 15(b) shall not be considered normal purchases and normal sales. Contracts that contain net settlement provisions as described in paragraphs 9(a) and 9(b) may qualify for the normal purchases and normal sales exception if it is probable at inception and throughout the term of the individual contract that the contract will not settle net and will result in physical delivery. Net settlement (as described in paragraphs 9(a) and 9(b)) of contracts in a group of contracts similarly designated as normal purchases and normal sales would call into question the classification of all such contracts as normal purchases or normal sales. Contracts that require cash settlements of gains or losses or are otherwise settled net on a periodic basis, including individual contracts that are part of a ser...See the full content of this document
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