31 January 2013

FASB: Clarification of disclosures that apply to balance sheet offsetting of assets and liabilities

The FASB issued an Accounting Standards Update, 'Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities'. The Update clarifies the scope of transactions that are subject to the disclosures about offsetting.

“This Update addresses stakeholder questions about the scope of balance sheet offsetting guidance issued by the FASB at the end of 2011”, said FASB Technical Director Susan M Cosper. “The Update will reduce unintended costs while providing investors and other users with the information they need to understand the extent to which certain financial instruments are offset pursuant to master netting arrangements.”

The Update clarifies that ordinary trade receivables and receivables are not in the scope of Accounting Standards Update No 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, Update 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification® or subject to a master netting arrangement or similar agreement.

Issued in December 2011, Update 2011-11 was the result of a joint project with the IASB. Its objective was to improve transparency and comparability between US GAAP and IFRS by requiring enhanced disclosures about financial instruments and derivative instruments that are either (1) offset on the statement of financial position or (2) subject to an enforceable master netting arrangement or similar agreement.

The Board undertook this clarification project in response to concerns expressed by US stakeholders about the standard’s broad definition of financial instruments. After the standard was finalised, companies realised that many contracts have standard commercial provisions that would equate to a master netting arrangement, significantly increasing the cost of compliance at minimal value to financial statement users.

Press release

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