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Journal entry — Balance sheet offsetting — IASB defers effective date of revised IAS 32 application guidance

Published on: Nov 16, 2011

Yesterday, the IASB met to discuss whether it should defer the tentative effective date for the amendments to IAS 32, Financial Instruments, as requested by certain constituents.

As a part of a joint project with the FASB, the IASB developed new, converged disclosure requirements for financial assets and financial liabilities that are subject to an enforceable master netting agreement or similar arrangement. At its September 2011 meeting, the IASB tentatively decided that these new disclosures would be effective for annual and interim reporting periods beginning on or after January 1, 2013 (with retrospective application required). The Board confirmed this tentative decision at yesterday’s meeting.

Also at its September meeting, the IASB tentatively decided to modify the application guidance in IAS 32 to:

  • Clarify that a right of set-off should be legally enforceable both in the normal course of business and in the event of default, bankruptcy, or insolvency of one of the counterparties.
  • Modify the definition of “net settlement” to indicate when certain gross settlement mechanisms may meet the definition of net settlement.

The Board had originally decided that these amendments should have the same effective date as the new disclosures. Upon hearing concerns from constituents regarding the time that would be required to implement these changes, the IASB tentatively decided yesterday to provide a one-year deferral. Thus, the amendments to the IAS 32 application guidance would now be effective for annual and interim reporting periods beginning on or after January 1, 2014. Retrospective application would be required.

The FASB and IASB are currently expected to issue final standards on balance sheet offsetting before the end of this year.

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