August 2000

FASB Amends Derivatives Statement

By Tom Morris

The Financial Accounting Standards Board recently issued an amendment to Statement 133, Accounting for Certain Derivative Instruments and Certain Hedging Activities. The new statement addresses a limited number of issues causing implementation difficulties for entities getting ready to apply Statement 133.

The new statement-

Expands the normal purchases and normal sales exception,
Redefines the specific risks that can be identified as the hedged risk so that in a hedge of interest rate risk the risk of changes in a benchmark interest rate would be the hedged risk,
Provides that recognized foreign currency denominated assets and liabilities may be the hedged item in fair value hedges or cash flow hedges, and
Provides that intercompany derivatives may be designated as the hedging instruments in cash flow hedges of foreign currency risk in the consolidated financial statements, even if those intercompany derivatives are offset by unrelated third-party contracts on a net basis.

The amendment also incorporates certain board decisions based on recommendations by FASB's derivatives implementation group to clarify Statement 133. The statement is the result of FASB's decision, after listening to its constituents, to ease implementation difficulties for a large number of entities. The amendment neither conflicts with Statement 133's basic model nor delays its effective date.

Contact the FASB order department at (800) 748-0659 to purchase a copy of the complete statement.