The IASB and the FASB discussed alternative approaches for requiring offsetting financial assets and financial liabilities on the face of the balance sheet. The staff offered the following alternatives:
- Alternative 1-This approach requires a right of set-off that is exercisable both in the normal course of business and in bankruptcy, insolvency, or default and intention to settle a financial asset and financial liability net or simultaneously.
- Alternative 2-This approach requires a right of set-off that is legally enforceable in the normal course of business and intention to settle a financial asset and financial liability net or simultaneously.
- Alternative 3-For derivative instruments, this approach provides an exception to the general offsetting criteria, which would allow offsetting of fair value amounts recognised for derivatives and fair value amounts recognised for the right to reclaim cash collateral or the obligation to return cash collateral, arising from derivative instrument(s) recognised at fair value with the same counterparty under a master netting agreement. This approach requires a right of set-off that is only enforceable in bankruptcy, insolvency, or default of one of the counterparties. The boards also considered a variation of this approach which would limit the exception for offsetting derivative instruments to only collateralised derivatives with daily variation margin postings.
All IASB members supported Alternative 1. Four members of the FASB supported Alternative 3, and three supported Alterative 1.
The boards noted that users consistently asked that information be provided to help reconcile any differences in the offsetting requirements for IFRSs and US GAAP. The boards agreed to work on converging disclosure requirements to assist users in comparing financial statements prepared in accordance with IFRSs and US GAAP.