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IASB publishes exposure draft on offsetting

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28 Jan 2011

The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) have published for public comment joint proposals on the offsetting of financial assets and financial liabilities in the statement of financial position.

ED/2011/01 Offsetting Financial Assets and Financial Liabilities proposes to require offsetting when an entity has the right to set-off a financial asset and financial liability and intends to either settle on a net basis or simultaneously.

The main proposals of the ED in detail

  • Under the proposals, an entity would be required to offset (ie present as a single net amount in the statement of financial position) a recognised financial asset and a recognised financial liability if, and only if, it has an enforceable unconditional right of set-off and intends either to settle the asset and liability on a net basis or to realise the asset and settle the liability simultaneously (the offsetting criteria).
  • The proposals clarify that the offsetting criteria apply whether the right of set-off arises from a bilateral arrangement or from a multilateral arrangement (ie between three or more parties). The proposals also clarify that a right of set-off must be legally enforceable in all circumstances (including default by or bankruptcy of a counterparty) and its exercisability must not be contingent on a future event.
  • The proposals would require an entity to disclose information about offsetting and related arrangements (such as collateral agreements) to enable users of its financial statements to understand the effect of those arrangements on its financial position.

The proposed requirements would supersede the requirements on offsetting in IAS 32 Financial Instruments: Presentation. Although the proposals are broadly comparable to the requirements contained in IAS 32 currently, they would modify the offsetting criteria in IFRSs by clarifying that the right of set-off should not only be currently enforceable. Additionally, the proposal would enhance the disclosures by requiring improved information about the assets and liabilities subject to set-off and the related arrangements.

The ED has a 90-day comment period with comments due on 28 April 2011.

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