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Year-End Consternation over the FASB's October Mee

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NEW YORK (–The International Swaps and Derivatives Association expressed its “serious concern” about a recent action by the staff of the Financial Accounting Standards Board, Norwalk, Conn.

The concerns were communicated in a letter to the chairman of the FASB’s emerging issues task force, Lawrence W. Smith, from ISDA’s Executive Director Robert G. Pickel. The complaints expressed were procedural in nature, but they concern one aspect of a broad movement by the FASB toward fair-value accounting principles.

At a meeting on Oct. 25, the emerging issues task force decided to rescind its Issue No. 98-10, “Accounting for Contracts Involved in Energy Trading and Risk Management Activities,” the effect of which was to preclude mark-to-market accounting for many energy-trading derivatives contracts. Accordingly, EITF Issue No. 02-3, “Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities,” has now superceded 98-10, encouraging mark-to-market.

Mr. Pickel’s letter did not object to that change, but to subsequent decisions by the FASB staff, in posting its observations on the monthly minutes of EITF, which he said have broadened the scope of that task force issue “beyond energy trading to include all derivative transactions…solely through the October meeting minutes process.”

Mr. Pickel’s letter, dated Dec. 31, said also that the EITF had planned to transfer consideration of the non-energy-related fair value issues outside of the EITF framework, “to the FASB’s larger fair value project.”

The use of the “October meeting minutes process” to change EITF guidance in such a way short-circuits that transfer, as well as undermining the FASB’s due process and public comment procedures, the letter said.

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