FASB Reverses Course,Will Delay Start Date Of Derivatives Rule

In a turnaround, the Financial Accounting Standards Board voted Wednesday to delay by six months the effective date of its controversial derivatives rule.

Accounting board chairman Edmund Jenkins said the new date of June 15, 1999, would give banks more time to focus on the costly and time-consuming process of fixing the potential computer-system complications that the year 2000 calendar change could cause.

"I think there is some credibility to the year-2000 problem," Mr. Jenkins said. "I understand banks are under pressure by the (Federal Reserve Board) to have this done by the end of 1998."

In addition, FASB staff said they did not expect to meet the yearend deadline to finish work on the rule. It is now scheduled to be issued March 25.

Before Wednesday, Mr. Jenkins had steadfastly held to the Jan. 1, 1999, effective date, despite requests for a postponement from lawmakers, regulators, and bankers.

The new accounting standard would require companies to report derivatives at fair market value on quarterly income statements. Bankers and regulators have argued that the cost of compliance, coupled with year 2000 expenses, would be extremely burdensome.

Industry officials applauded the move.

"Most companies, and certainly most banks, have donated considerable resources to year 2000 initiatives, and I don't know how anyone could have implemented the FASB rule without another year to deal with it," said Citicorp controller Roger W. Trupin.

However, FASB's concession is unlikely to persuade banking officials to support the rule, Mr. Trupin added. Banks and other companies that use derivatives contend it would distort earnings and discourage the use of the instruments as risk-management tools.

"The extra time doesn't make it a better accounting standard," Mr. Trupin said.

The FASB decision came on the heels of a Dec. 16 letter from Rep. Richard Baker, R-La., who told Mr. Jenkins he plans to introduce a bill that would require FASB to delay the rule until Jan. 1, 2000.

In an interview Wednesday, the lawmaker endorsed the delay but said he may still introduce his bill early next year.

"This is the first positive sign I've gotten from FASB in this whole discussion," Rep. Baker said. "I will confer with the banking regulators and determine if the problems they have can be addressed with the additional six months, or whether we need a bill that gives us a full year."

Like Mr. Trupin, the congressman said the accounting standards board would have to make fundamental changes to the rule to get regulators and bankers on board.

"Whether you are hung at noon or at midnight, you are still getting hung," Rep. Baker said. "FASB still has to make this rule workable."

Regulators could exempt banks from the derivatives rule under a bill introduced last month by Sen. Lauch Faircloth, R-N.C. The legislation would allow the agencies to block the rule if they determined it would distort earnings or impede risk-management efforts.

At Wednesday's FASB meeting, Mr. Jenkins did not mention either bill as a reason for delaying the accounting standard. However, in a statement released before the meeting, Mr. Jenkins said he was concerned that the two bills could politicize the setting of accounting standards.

"I am disappointed and concerned over the impact (this) legislation may have on the FASB's independence and objectivity," the statement said. "If enacted, the legislation may have serious implications on the viability of private-sector standard-setting in the United States."

- Bill McConnell contributed to this story

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