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Offsetting Update (IASB only)

Date recorded:

In December 2011, the IASB and FASB published joint offsetting disclosure requirements (effective from 1 January 2013). However, in October 2012, the FASB, as a result of feedback from constituents (primarily related to implementation issues and inconsistency in planned practice related to trade receivables, trade payables and unsettled regular-way trades, operationality concerns and assessments of costs versus benefits), added a project to its agenda to amend the scope of its related disclosure requirements (included in Accounting Standards Update (ASU) No. 2011-11, Disclosures About Offsetting Assets and Liabilities) from the previously converged scope. The FASB’s revised scope would limit the disclosure requirements to derivatives, repurchase agreements and reverse repurchase agreements and securities lending and securities borrowing arrangements, while the IASB’s disclosure requirements would apply to financial assets and financial liabilities that are actually set off in the statement of financial position as well as financial assets and financial liabilities that are subject to enforceable master netting arrangements or similar agreements, even if they are not set off in the statement of financial position.

At this meeting, the staff updated the IASB on the FASB’s recent tentative decisions. However, the staff did not ask the IASB to make any decisions as a result.

Subsequent to summarising constituent concerns raised to the FASB, as well as the FASB’s discussions related to these concerns, the IASB staff recommended that the IASB not change the scope of its disclosures. Reasons for this recommendation included:

  • The IASB staff had not been made aware of scope issues such as those raised to the FASB;
  • A view that one of the key objectives of the disclosures is to provide more information about offsetting and credit risk mitigation, and by further reducing the scope of the disclosures, this would contradict that stated objective;
  • A fear that limiting the scope may result in unintended consequences in inappropriately excluding certain arrangements from the scope of the disclosure requirements; and
  • An inability to complete required due process steps in advance of the mandatory effective date of the requirements.

One Board member expressed support for the staff’s analysis. He noted that the IASB should not amend the scope of its disclosure requirements. However, another Board member had sympathy for the concerns being raised to the FASB. He noted that in his jurisdiction, concerns had been raised regarding the inclusion of trade receivables and payables within the scope of the disclosures. Specifically, constituents in his jurisdiction had noted the inclusion of trade payables and receivables in the scope would require a comprehensive review of all contracts to determine if the provisions of each contract would be considered a master netting arrangement or similar agreement, which would not be operational in line with the 1 January 2013 effective date.

No other comments or concerns were raised and no votes were called.

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