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FASB Exposure Draft on SFAS 133 Implementation Issues

On May 1, the Financial Accounting Standards Board (FASB) issued an Exposure Draft, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which reaffirms contract or book value for synthetic GICs held by plan sponsors.  This amendment preserves the existing stable value accounting treatment for fully benefit responsive investment contracts purchased by defined contribution plans, including health and welfare and pension plans. 

Or in plainer English, the Exposure Draft, reaffirms AICPA Statement of Position 94-4 (S0P 94-4).  The FASB had provided interim relief with FAS 133 Implementation Issue C19 when SVIA first raised concerns. 

As you may recall, the accounting treatment for synthetic GICs was called into question when issuers were instructed to report synthetic GICs at fair market value with the release of FAS 133 Issue A16.   A16 indicated that a synthetic GIC was a derivative and should be accounted for at fair value by the issuer of the contract.  Auditors of defined contribution plans began to question if A16 should also apply to purchasers of synthetic GICs.

Because of this uncertainty, the SVIA and its members sought clarification from the FASB and AICPA that preserved and upheld contract or book value as defined in SOP 94-4.

All comments on The Exposure Draft, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, are due before July 1.  SVIA will be sending a letter in full support of FASB’s clarification and preservation of SOP 94-4 for purchasers of synthetic GICs.  The Exposure Draft is available at accounting.rutgers.edu.  For more information, please contact SVIA’s Gina Mitchell (202-261-6528) or me at (502-560-3088).

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