About the project
This project has now been completed. On 16 December 2011 the IASB and FASB issued common disclosure requirements that are intended to help investors and other users to better assess the effect or potential effect of offsetting arrangements on a company's financial position. The new requirements are set out in Disclosures-Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7). As part of that project the IASB also clarified aspects of IAS 32 Financial Instruments: Presentation. The amendments address inconsistencies in current practice when applying the requirements.
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Offsetting, otherwise known as netting, takes place when entities present their rights and obligations to each other as a net amount in their statements of financial position.
In January 2011 the IASB and the FASB published the exposure draft (ED) Offsetting Financial Assets and Financial Liabilities. This was in response to requests from users of financial statements and recommendations from the Financial Stability Board to achieve convergence of the boards’ requirements for offsetting financial assets and financial liabilities.
The offsetting model in IAS 32 Financial Instruments: Presentation requires an entity to offset a financial asset and financial liability when , an only when, an entity currently has a legally enforceable right of set-off and intends either to settle on a net basis or to realise the financial asset and settle the financial liability simultaneously.
The US GAAP offsetting model, while similar to the model in IFRSs, also provides a broad exception which permits entities to present derivative assets and derivative liabilities subject to master netting arrangements net in the statement of financial position even if an entity doesn’t have a current right or intention to settle net.
The different requirements result in a significant difference between amounts presented in statements of financial position prepared in accordance with IFRSs and amounts presented in statements of financial position prepared in accordance with US GAAP, particularly for entities that have large amounts of derivative activities. The proposals in the exposure draft would have replaced the requirements for offsetting financial assets and financial liabilities and would have established a common approach with the FASB.