IAS 32 was amended to add application guidance to address the inconsistent application of the standard in practice. The application guidance clarifies that the phrase ‘currently has a legal enforceable right of set-off’ means that the right of set-off must not be contingent on a future event and must be legally enforceable in the normal course of business, in the event of default and in the event of insolvency or bankruptcy, of the entity and all of the counterparties.
The amendments to IFRS 7 require disclosures that provide both gross and net information about financial assets and financial liabilities that is relevant for analysing financial statements and derive key financial ratios (e.g. leverage). The disclosures enable users of financial statements to evaluate the (potential) effect of netting arrangements, including rights of set-off associated with an entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position. Finally, disclosures are required that provide information about collateral and collateral in the form of the financial instruments and the effect of such arrangements on the entity’s financial position.
The amendments to IFRS 7 will apply for annual and interim reporting periods beginning on or after 1 January, 2013. The amendments to IAS 32 will apply for annual and interim reporting periods beginning on or after 1 January, 2014. Earlier application is permitted. If an entity applies the amendments in IAS 32 from an earlier date, it shall disclose that fact and shall also make the disclosures required by the amendments in IFRS 7.
EFRAG has carried out an evaluation of the Amendments. As part of that process, EFRAG issued its initial assessment for public comment and, when finalising its advice and the content of this letter, it took the comments received in response into account. EFRAG’s evaluation is based on input from standard-setters, market participants and other interested parties, and its discussions of technical matters are open to the public.
EFRAG supports the Amendments and has concluded that they meet the requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards in that they:
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are not contrary to the principle of ‘true and fair view’ set out in Article 16(3) of Council Directive 83/349/EEC and Article 2(3) of Council Directive 78/660/EEC; and
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meet the criteria of understandability, relevance, reliability and comparability required of the financial information needed for making economic decisions and assessing the stewardship of management.
EFRAG is not aware of any reason to believe that it is not conducive to the European public good to adopt the Amendments and, accordingly, EFRAG recommends their adoption.
© EFRAG - European Financial Reporting Advisory Group
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