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EITF Schedules Meeting To Settle Swap Measurement Debate

26 Aug 2004

The Financial Accounting Standards Board's Emerging Issues Task Force plans to meet next month with the aim of settling the debate on how to value interest rate swaps in collateralized debt obligations and therefore whether swap counterparties have to consolidate the whole deal.

The Financial Accounting Standards Board's Emerging Issues Task Force plans to meet next month with the aim of settling the debate on how to value interest rate swaps in collateralized debt obligations and therefore whether swap counterparties have to consolidate the whole deal. The problem stems from whether the swaps should be measured using a cash-flow or fair-value approach (DW, 6/28).

Tony Sondhi, financial consultant at A.C. Sondhi & Associates in Maplewood, N.J. and member of the EITF, said the EITF staff is going to present its analysis of the issues at the meeting.

Sondhi clarified that the EITF is not looking for an answer to whether swap counterparties should consolidate, rather it is looking at how swaps should be measured. "From my perspective, we are trying to ensure that we have come up with an appropriate approach to understand variable interest. Whether it ends up having an impact on a specific industry is not what we are looking at," he said.

Although the aim is to come up with an answer at the September meeting, if there is more work to be done the EITF will schedule further meetings.

 

26 Aug 2004