The IASB and the FASB discussed the factors for offsetting and made the following tentative decisions:
- An entity would be required to offset a recognised financial asset and financial liability if it has the unconditional right of offset and intends to either net settle or settle simultaneously.
- An unconditional right refers to a right of offset that is enforceable in all circumstances (including default by or bankruptcy of a counterparty).
- Simultaneous settlement refers to realisation of an asset and settlement of a liability at the same moment.
An entity would not be allowed to offset (net) a recognised financial asset and financial liability if the entity has only a conditional right of offset.