Clarification of the circumstances under which either an option-based or non-option-based financial contract with an initial net investment qualifies as a derivative would lead to more consistent reporting of financial contracts as either derivatives or financial hybrids, FASB claimed.
Option-based contracts are defined as having an initial net investment equal to the fair value of the option component. Conversely, non-option-based contracts are defined as requiring an initial net investment less than 5% of the fully prepaid amount.
FASB is aiming to implement this accounting change by November 15, 2002, at the earliest. A consultation period where interested parties can submit comments on the proposed change will end in July.
FASB was established in 1973. It is a private sector organisation responsible for financial accounting and reporting in the US.
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