It was beginning to look like Financial Accounting Standard 133 would never be implemented. But July 1 came and went with nary a whimper. Stressed-out corporate treasurers were probably too busy getting ready for the standard—which took effect last month for companies beginning their next fiscal year—to find the time to beg for another reprieve.

Still, there was a fair amount of brinksmanship leading up to "I-Day.” On June 15, the Financial Accounting Standards Board made one last major tinker to the standard—called FAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities.” The latest amendment addresses a few issues that were giving big companies trouble as they raced to prepare for implementation. There were four main changes.

First, the normal purchases and normal sales exception was expanded to include contracts that implicitly or explicitly permit net settlement, and contracts that have a market mechanism to facilitate net settlement.

Second, the specific risks that can be identified as hedged risks were redefined. Now, in a hedge of interest rate risk, the risk of changes in a benchmark interest rate are considered the hedged risk.

Third, foreign-currency-denominated assets and liabilities for which a foreign currency transaction gain or loss is recognized in earnings may be the hedged item in fair value hedges or cash flow hedges.

Fourth, FAS 138 says that certain intercompany derivatives may be designated as the hedging instruments in cash flow hedges of foreign currency risk in the consolidated financial statements, if those intercompany derivatives are offset by unrelated third-party contracts on a net basis.

"Most corporates will say that the changes made by FAS 138 are a help,” notes Joseph Neu, publisher of FAS133.com, a web site dedicated to implementation issues, "but financial institutions may find that some of the nuances brought about by the changes to interest rate hedging will complicate their accounting for existing hedging tactics.”

Statement 138 is the second amendment to FAS 133. Last June, FAS 137 delayed the effective date for one year. "Although the FASB delayed the effective date of FAS 133 for more than a year to give everyone time to update their systems,” says Mr. Neu, "there's a good chance that some companies will have problems that could lead them to have to restate their earnings.”

In its recently released FAS 133 readiness survey of treasury/risk management systems, FAS133.com found that 10 of the 17 major vendors are reporting compliance with the new Standard. However, the survey report also notes that systems only enable compliance. Those adopting FAS 133 must first bring their risk management activities into line and map out compliant processes in order for their systems to deliver.

"Unlike the 1997 SEC disclosure requirements which brought a number of quick fix solutions to market (e.g., VaR calculators), FAS 133 cuts too deep for such band aids,” notes Neu. "Unless you just aren't much of a derivatives user, FAS 133 requires some fundamental rethinking of your risk management approach. "

After talking to the July 1 adopters over the last several weeks, Neu found a fair number that overestimated their ability to simply cut over to so-called "FAS 133-compliant” systems. In hindsight, these same companies wish they would have invested more in the pre-installation phase, including education and training, as well as consulting and support services, for which they now must pay the price. The question is, will there be January 1 adopters still making the same mistake? The SEC will be watching carefully.

For more information, see www.fasb.org and www.fas133.com.