In July 2011 the IASB and the FASB tentatively agreed on converged disclosures that would amend IFRS 7 Financial Instruments: Disclosures. These converged disclosures would provide users of financial statements with information about rights of set-off related to an entity's financial instruments and the effects of such rights on its statement of financial position that would be comparable between IFRSs and US GAAP. In September 2011 the IASB also decided to address inconsistencies in the application of the offsetting criteria in the current IAS 32 Financial Statements: Presentation by adding application guidance to IAS 32 to clarify: (1) the meaning of 'currently'; and (2) that some gross settlement systems would be considered to be equivalent to net settlement.
At the November 2011 meeting the IASB discussed additional feedback received about clarifications to the application guidance in IAS 32 and how it may change practice for some entities and affect the amount of time they would need for implementation. This was primarily due to:
- the clarification that a right of set-off must not only be a legally enforceable right in the normal course of business, but that it must also be enforceable in the event of default and the event of insolvency or bankruptcy; and
- the clarification that a right of set-off must be legally enforceable for all parties (ie including the reporting entity).
In September 2011, the IASB had tentatively decided that the converged offsetting disclosures in IFRS 7 and the clarifications to the application guidance in IAS 32 would be retrospectively applied, with an effective date of annual periods beginning on or after 1 January 2013.
In the light of the feedback received, the IASB:
- confirmed that the effective date and transition requirements of the converged offsetting disclosures in IFRS 7 should not be changed. 14 IASB members supported this decision.
- tentatively decided that the clarifications to the application guidance in IAS 32 would be retrospectively applied, with an effective date of annual periods beginning on or after 1 January 2014. 9 IASB members supported this decision.