Keeping up with the ever-evolving guidance on FASB Statement no.133 is nearly a full-time job. In the two and a half years since FASB first issued the standard, it has been deferred by the issuance of FASB Statement no. 137, Accounting for Certain Derivative Instruments and Certain Hedging Activities—an Amendment of FASB Statement no. 133, amended by the issuance of Statement no. 138, Accounting for Certain Derivative Hedging Instruments and Certain Hedging Activities—an Amendment of FASB Statement no. 133 and subject to scores of interpretations. It is unlikely that in 1998 when the board issued Statement no. 133 anyone foresaw the complexity and nuances of the implementation issues. However, FASB recognized that intricacies of Statement no. 133 necessitated a novel post-standard-setting effort to identify and provide guidance on the standard’s requirements. To assist FASB staff in this task, the board formed the Derivatives Implementation Group (DIG), which is chaired by James Leisenring, former FASB vice-chairman, and includes 11 other members.
The DIG has no voting authority. It serves solely as an adviser to the board and FASB staff, identifying implementation issues and recommending solutions. Although FASB formed the DIG to help constituents apply Statement no. 133, many argue the DIG process has created more questions than it has answered. The DIG has discussed nearly 200 issues; the FASB staff has issued final staff implementation guidance on approximately 125 of them. As of the standard’s effective date, guidance was unavailable for nearly 75 implementation issues. In addition, the FASB had not determined the transition guidance for companies that will have to change their accounting if, after they adopt Statement no. 133, the DIG resolves an implementation issue. For some companies, the resolution of certain issues will have a material impact on financial statements.
As businesses began to realize the full impact the standard would have on their financial statements, as well as their operations, they sent FASB numerous requests for amendments. Although the DIG deliberated on several, the FASB staff was uncomfortable making substantial changes to the standard without employing the board’s standard-setting process. Therefore, in December 1999 the board began to consider making amendments to Statement no. 133 in ways that would ease implementation difficulties for a large number of entities, not conflict with or modify the basic model of Statement no. 133, and not delay the effective date. The board put the project on the fast track, issuing Statement no. 138 last June. That standard’s amendments to Statement no. 133 include:
Expanding the normal purchases and normal sales scope exception.
Redefining interest rate risk.
Narrowing the use of the shortcut method.
Hedging recognized foreign-currency-denominated assets and liabilities.
Hedging with intercompany foreign exchange derivatives.
Statement no. 138 provides much-needed relief within a number of industries but at the same time creates many new implementation questions and complexities.
Despite FASB’s efforts, implementation issues continue to arise and requests for amendments have not ceased. In fact, as the adoption date for most calendar-year companies passed, the implementation issues seemed to increase both in number and in significance. Although the DIG’s life span is uncertain, FASB has scheduled its meetings through December 2001. At this point, the flow of Statement no. 133 information from both users and regulators shows no signs of letting up.
—Deidre Schiela and Nora Dougherty
Deidre Schiela, CPA, is a partner in the National Risk and Quality group of PricewaterhouseCoopers LLP, and a member of the Derivatives Implementation Group. NORA DOUGHERTY, CPA, is a manager in the National Risk and Quality group of PricewaterhouseCoopers LLP.