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Financial instruments — Asset and liability offsetting

Background

Offsetting, otherwise known as netting, takes place when entities present their rights and obligations to each other as a net amount in their statement of financial position.

In response to stakeholders' concerns (including those of the Basel Committee on Banking Supervision and the Financial Stability Board), the IASB and the FASB decided to jointly address differences in their respective standards on balance sheet netting of derivative contracts and other financial instruments. US GAAP currently permits an exception to the offsetting criteria for certain derivative contracts subject to a master netting agreement (a conditional form of netting where in the event of default or bankruptcy all asset and liability contracts are netted into a single payable or receivable amount) and repurchase agreements while IFRS does not permit a similar exception.

 

Current status of the project

This project has been completed.

In January 2011, the IASB and FASB issued an exposure draft ED/2011/1 Offsetting Financial Assets and Financial Liabilities. During redeliberations, the IASB and FASB were unable to agree on the overall approach for offsetting of financial assets and financial liabilities, and the Boards decided to focus on disclosure requirements that would allow users to more easily compare credit exposure among US GAAP and IFRS preparers.  The IASB additionally decided to expand the application guidance on offsetting in IAS 32 Financial Instruments: Presentation.

The IASB released Disclosures — Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) and Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) on 16 December 2011.

 

Project milestones

DateDevelopmentComments
June 2010 Added to the IASB's agenda
28 July 2010 User survey published Completion deadline 20 August 2010
28 January 2011 Exposure Draft ED/2011/01 Offsetting Financial Assets and Financial Liabilities published Comment deadline 28 April 2011
16 December 2011 Disclosures — Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) issued
 The amendments to IFRS 7 apply to annual periods beginning on or after 1 January 2013 and interim periods within those periods
16 December 2011 Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) issued
 The amendments to the application guidance in IAS 32 are applicable to annual periods beginning on or after 1 January 2014

Related Discussions

  • Offsetting Update (IASB only)

  • Nov 20, 2012

  • The staff updated the IASB on the amended scope to the related disclosure requirements the FASB has tentatively reached.

  • Report of the IASB Chairman

  • Jan 12, 2012

  • Hans Hoogervorst noted that he had provided a detailed written report with supporting appendices. He limited his remarks to highlighting some issues.

  • Offsetting – Additional feedback: Effective dates

  • Nov 15, 2011

  • The IASB considered the effective date for the forthcoming clarifying amendments to IAS 32 'Financial Instruments: Presentation' and the new disclosures requirements on offsetting financial instruments.

  • Asset and liability offsetting

  • Sep 20, 2011

  • The IASB considered areas of diversity in practice identified during the offsetting project including (1) the meaning of 'currently has a legally enforceable right of set-off' (2) the application of the simultaneous settlement criterion (3) the treatment of collateral and margin and (4) issues around unit of account. The Board also considered the effective date and transition of the amendments.

  • Financial instruments – Asset and liability offsetting

  • Jul 22, 2011

  • The IASB considered whether to proceed with the proposals in the offsetting exposure draft or to simply retain existing IAS 32 guidance and implement new disclosures based on the exposure draft and deliberations with the FASB.

  • Asset and liability offsetting

  • Jul 21, 2011

  • The IASB and FASB discussed the scope and presentation of the proposed disclosure requirements that would allow users to more easily compare credit exposure among US GAAP and IFRS preparers, in light of the Board's inability to agree on the overall approach for offsetting of financial assets and financial liabilities.

  • Financial instruments – Asset and liability offsetting

  • Jun 14, 2011

  • The IASB and FASB discussed the overriding model for offsetting based on feedback received from the proposals in the exposure draft. The Boards considered three possible alternatives for the offsetting model.

  • IASB-EFRAG meeting

  • Jun 14, 2011

  • Multiple Board members of the IASB, its staff and the incoming vice-chairman of the IASB met with members of the European Financial Reporting Advisory Group (EFRAG) to discuss (1) the state of the major projects (2) new standards on consolidation, joint arrangements and disclosures (3) the timeline for completion of major projects.

  • Asset and liability offsetting

  • Jun 01, 2011

  • The IASB and FASB hosted an educational session where members of the International Swaps and Derivatives Association (ISDA), followed by a joint meeting where the Boards discussed the unit of account for offsetting and collateral arrangements.

  • Asset and liability offsetting

  • May 17, 2011

  • The IASB and FASB considered a summary of feedback received from the offsetting exposure draft as well as during outreach activities, and considered the way forward for the project.

  • Asset and liability offsetting – Disclosure requirements

  • Dec 16, 2010

  • The IASB and FASB continued their discussions on disclosure requirements, specifically the IASB proposal that an entity should provide information about offsetting and related arrangements (such as collateral agreements) and the effect of those arrangements on an entity's exposure to financial contracts in tabular format.

  • Asset and liability offsetting

  • Dec 14, 2010

  • The IASB and FASB considered (1) whether to require offsetting for both bilateral and multilateral arrangements when the criteria are met (2) disclosure requirements (3) transition requirements (4) comment period for the exposure draft.

  • Asset and liability offsetting

  • Nov 17, 2010

  • The IASB and FASB continued discussions on the appropriateness of offsetting of financial assets and financial liabilities.

  • Asset and liability offsetting

  • Oct 21, 2010

  • The IASB and FASB considered the conditions necessary for offsetting financial assets and liabilities, discussing six potential conditions that could be considered as conditions for offsetting and their interaction.

  • Asset and liability offsetting

  • Sep 15, 2010

  • The staff presented to both the IASB and FASB the results of outreach activities performed in July and August 2010 related to offsetting of financial assets and liabilities, which included meetings with analysts from asset management firms, investment banks, and rating agencies as well as an online user survey.

All Related