Asset and liability offsetting – Disclosure requirements
The information below represents a follow-on discussion from that held by the IASB and FASB on Tuesday 14 December 2010. Specifically, the IASB proposed 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. That information should be presented in a single note and in a tabular format, unless another format is more appropriate. The following proposed disclosures were discussed at the meeting:
For each type of financial instrument (financial assets and financial liabilities to be separately disclosed), an entity shall disclose:
- the gross carrying amount (i.e. before taking into account amounts offset in the statement of financial position and other mitigating factors)
- amounts deducted as a result of the offset criteria in XX to derive the carrying amounts in the statement of financial position
- the portion of the exposures that is covered by a legally enforceable netting agreement (other than in (ii))
- the amount of collateral (cash collateral and fair value of non cash financial asset collateral should be separately disclosed) obtained or pledged in respect to those assets and liabilities
- the net exposure after taking into account the effect of the items in (ii) – (iv).
The IASB staff provided two different approaches to the above disclosure requirements in the form of appendices for purposes of the discussion.
A member of the IASB had concerns that the wording in the paper and the wording in the appendices was inconsistent and, amongst other things, it was unclear whether the starting point was "fair value" or "fair value less amortised cost". It was confirmed by the staff that the starting point should be the carrying value of the assets and liabilities as indicated on the balance sheet. Another concern of the IASB with the proposed model was that assets/liabilities held at amortised cost and assets/liabilities held at fair value would be combined and provide for less adequate disclosure than envisioned. The IASB staff responded that it was necessary to have some aggregation to prevent the inclusion of an overly complex disclosure requirement. One IASB member questioned the inclusion of cash and non-cash financial collateral into the table.
The Boards discussed this topic and ultimately decided by a majority vote (IASB - 15 yes; FASB - 5 yes) to include cash and non-cash financial collateral in the table. The Boards will move forward with a plan to amend the wording in the appendices and redistribute to the Boards for discussion at a later date.
This concluded the meeting on asset and liability offsetting.