IASB Wraps Up Redeliberations of Balance Sheet Offsetting

Published on: 21 Sep 2011

Yesterday, the IASB continued discussions of its joint project on the offsetting of financial assets and financial liabilities, making tentative decisions about the effective date and transition method for the proposed disclosure guidance and IAS 321 application guidance.

Proposed Disclosures — Effective Date and Transition

After reaching differing tentative decisions on how to proceed with their joint exposure draft,2 the IASB and FASB developed new, converged disclosure requirements to increase the comparability of financial statements prepared in accordance with U.S. GAAP and IFRSs.3 At yesterday’s meeting, the IASB determined that these proposed disclosure requirements should be included in IFRS 74 and unanimously voted that they should be effective for annual and interim reporting periods beginning on or after January 1, 2013. Retrospective application will be required. These decisions are consistent with the tentative decisions reached by the FASB in August.5

IAS 32 Application Guidance

As a part of constituent outreach efforts conducted throughout the course of the project, the IASB identified various practice issues pertaining to the inconsistent application of the current offsetting guidance in IAS 32. At yesterday’s meeting, the IASB discussed these practice issues, tentatively deciding to:

  • Clarify IAS 32 to indicate 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” in IAS 32 to include gross settlement mechanisms with features (1) that eliminate or result in insignificant credit and liquidity risk and (2) under which processing of receivables and payables occurs in a single settlement process.

In addition, the IASB tentatively decided not to provide additional application guidance on (1) the treatment of collateral obtained or pledged with respect to recognized financial assets and financial liabilities and (2) the appropriate unit of account for applying the offsetting criteria in IAS 32. Therefore, existing practice under IAS 32 would remain unchanged for these items.

As with its tentative decision on disclosures, the Board determined that these amendments should be applied retrospectively and that they will be effective for annual and interim reporting periods beginning on or after January 1, 2013.

At the end of the meeting, the IASB instructed its staff to begin drafting the final standard. According to its current work plan, the Board is expecting to issue final guidance in the fourth quarter of this year.


[1] IAS 32, Financial Instruments: Presentation.

[2] See Deloitte’s June 14, 2011, journal entry for further detail.

[3] See Deloitte’s July 25, 2011, journal entry for further detail.

[4] IFRS 7, Financial Instruments: Disclosures.

[5] See Deloitte’s August 10, 2011, journal entry for further detail.

Accounting Journal Entries Image

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.