Derecognition of Financial Instruments

Date recorded:

Offsetting of financial assets and financial liabilities

This was an educational session. No decisions were made.

The Board considered offsetting of a financial asset and a financial liability and presentation of the net amount on the face of the statement of financial position. Despite being a presentation rather than derecognition issue, the Board considered whether to include offsetting in the scope of the derecognition project.

The Board noted that offsetting rules were different in US GAAP and IFRSs. Those different requirements were particularly challenged due to current discussion over the new regulatory leverage ratio.

The Board agreed that convergence on this particular issue would be more than needed. Nonetheless, the staff noted that from the preliminary discussion with the FASB members, the FASB was reluctant to address that issue in the foreseeable future. The Board agreed to discuss the issue at the next joint meeting.

Some Board members were reluctant to include this issue in the derecognition project as they feared it might jeopardise convergence on derecognition.

The Board discussed some of the differences between the US GAAP and the IFRSs in the area of offsetting. From the discussion it was obvious that a clear majority of the IASB members strongly preferred the IFRS requirements on offsetting to the FASB rules, especially with respect to the right to set off.

The Board also discussed the impact of single-agreement provisions in master agreements (for example, ISDA master agreement). There were divergent views how this single agreement provision should be accounted for, whether it should be considered for accounting, and if so, then under which conditions.

The Board agreed first to discuss the issue with the FASB and only then to consider whether it needed to address any of these issues separately.

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