At this meeting, the IASB discussed:
- Whether and how to address inconsistencies in the application of today's offsetting requirements by adding application guidance to IAS 32 Financial Instruments: Presentation
- Whether consequential amendments to other IFRSs were needed on the basis of the tentative decisions taken in the project
- The effective date and transition for the IAS 32 application guidance and the converged disclosure requirements
- Whether the Board was satisfied that all mandatory and non-mandatory due process steps had been performed, and whether re-exposure was required.
On the basis of the tentative decisions taken on the topics above, the Board granted the staff permission to prepare amendments to IAS 32 as well as the converged disclosures for balloting.
IAS 32 Application Guidance
In its meeting in July 2011 the IASB noted that the project consultation had highlighted inconsistencies in the application of the offsetting requirements in IAS 32.
In this meeting the Board considered whether those inconsistencies should be addressed and, if so, how.
The Board tentatively decided to address these inconsistencies by adding application guidance to IAS 32 to clarify that:
- A right of set-off must be legally enforceable both in the normal course of business and in the event of default, bankruptcy and insolvency of one of the counterparties. Eleven Board members supported this decision.
- Gross settlement systems that have the following distinguishing factors would be considered equivalent to net settlement:
- financial assets and financial liabilities that meet the right of offset criterion are submitted for processing at exactly the same point;
- once submitted for processing, the transactions cannot be cancelled or altered (there is no or insignificant liquidity and credit risk);
- there is no potential for the cash flows arising from the assets and liabilities to change once they have been submitted for processing unless the processing fails (there are no potential change in cash flows);
- if the processing of one asset or liability that is offset against another fails, then the processing of the related security used as collateral also fails (there is always net exposure/similar to a securities transfer system or delivery versus payment);
- processing is carried out through the same settlement depository (for example, delivery versus payment or the same depositary account0 and
- there is a high likelihood that an intraday credit facility is available and would be honoured until the settlement process is complete (there is no settlement (liquidity/credit) risk).
Location of offsetting requirements, application guidance and converged disclosures
The Board tentatively decided that the offsetting criteria and amendments to the offsetting application guidance should remain in IAS 32, and that the disclosures should be placed in IFRS 7 Financial Instruments: Disclosures.
Application guidance—effective date and transition
The Board tentatively decided that the amendments to the offsetting application guidance should be applied retrospectively and be effective for annual and interim reporting periods beginning on or after 1 January 2013.
The Board tentatively decided that no consequential amendments to other IFRSs were necessary as a result of the offsetting project.
Disclosures—effective date and transition
The Board tentatively decided that the revised disclosure requirements should be applied retrospectively and be effective for annual and interim reporting periods beginning on or after 1 January 2013.
Due process considerations
The Board noted that it was satisfied that all mandatory due process steps for the offsetting project and that sufficient non-mandatory due process steps had been performed.
All Board members supported these decisions.
The Board tentatively decided that neither the amendments to the IAS 32 application guidance nor the converged disclosure requirements required re-exposure.
Fourteen Board members supported this decision.