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IAS 32 — Offsetting in respect of certain cash pooling arrangements

Date recorded:

New item — Offsetting in respect of certain cash pooling arrangements

The IFRS Interpretations Committee has received a request to clarify whether certain cash pooling arrangements between subsidiaries in a group would meet the requirements for offsetting in IAS 32.

The submitter described a notional pooling arrangement where the interest is calculated on the net balance of all the separate bank accounts and where there are regular transfers of balances into a single netting account (not at the reporting date). Such transfers would not be required under the contractual terms of the arrangements and the bank and the group would have the necessary legally enforceable right to set these balances off under IAS 32 at the reporting date.

The submitter asked whether the described transfers during the period demonstrate an intention to settle the period-end balances on a net basis for the purpose of meeting the offsetting requirement in IAS 32.

Staff recommendation

The staff had reached out to several constituents and a number of respondents stated that it was unclear whether the described cash pooling arrangement was common. There were mixed views regarding the predominant accounting treatment.

The staff analysed that the accounting depended on the individual facts and circumstances of each case and judgement would be required.   The staff also did not have evidence of diversity in practice, particularly when differences in off-setting practice might be attributable to differences in the facts and circumstances.

On that basis the staff recommends that the Committee should not take this issue onto its agenda.

Committee discussion and decision

The Committee members broadly supported the staff recommendation to issue an agenda decision. However, several Committee members struggled with some of the wording in the proposed tentative agenda decision. One member suggested referring to guidance in the Standard rather than judgement. The Senior Technical Manager replied that there were cases where judgement was required. Other members noted that the fact the amounts were unknown did not affect the intention to settle. An entity could have an intention to settle unknown amounts. One Committee member suggested clarifying whether it was expected that the amounts would subsequently change or if it was a mere possibility. It was also proposed to clarify that this was a specific fact pattern and the decision would not apply to other financial instruments (e.g. derivatives).

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