At this week’s joint board meetings, the FASB and IASB continued discussions on their joint project on balance sheet offsetting. The boards reached tentative decisions on circumstances in which an entity is required to offset financial assets and financial liabilities for balance sheet presentation.

As the FASB’s Web site notes, the boards decided to require an entity to offset a recognized financial asset and financial liability only if the entity has the unconditional right of offset and intends to settle net or to settle simultaneously. Simultaneous settlement refers to transactions that settle at the same moment. The boards also decided that an entity cannot offset a recognized financial asset and financial liability if the entity has a conditional right of offset.

Under current U.S. GAAP, an entity is permitted to offset a recognized financial asset and financial liability if it has an unconditional right to offset and the intent to offset such positions. In some circumstances, an entity also may offset when there is a conditional right of offset.

The FASB and IASB are currently scheduled to release exposure drafts for a balance sheet offsetting standard before the end of the year. The boards also intend to hold roundtable discussions in the first quarter of 2011.