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14 April 2011

FEE commented on the IASB Exposure Draft 'Offsetting Financial Assets and Financial Liabilities'


FEE welcomed that both the IASB and the FASB developed a joint proposal in relation to offsetting financial assets and liabilities, and provided its response to the IASB Exposure Draft 'Offsetting Financial Assets and Financial Liabilities' (the “ED”).

FEE supports the IASB's decision to use the existing guidance for offsetting purposes as detailed in IAS 32 Financial Instruments: Presentation with the proposed refinements.
 
Overall, FEE supports the proposals as presented in the ED, since it is principle-based and ensures consistent treatment of all financial assets and liabilities. FEE believes that most of the suggested refinements are not likely to give rise to significant concerns and that they represent a step in the right direction in the context of moving towards a global standard for financial instruments. FEE does not consider that preparers would face major difficulties in applying them in practice.
 
FEE supports the IASB’s proposal to establish an overreaching principle for offsetting financial assets and financial liabilities based on the existing criteria in IAS 32 Financial Instruments: Presentation requirements.
 
FEE agrees with the proposal clarifying that the right to set off the financial asset and the financial liability must be unconditional and legally enforceable in all circumstances (and its exercisability must not be contingent on a future event).
 
FEE thinks it is the right approach to keep the scope of the offsetting guidance unchanged, and requires offsetting for both bilateral and multilateral arrangements that meet the offsetting criteria, despite the fact that multilateral offsetting is likely to be unusual.
 
FEE has concerns that the exposure draft clarifies that realisation of a financial asset and settlement of a financial liability qualify for net presentation only when the settlement occurs at the same moment. Therefore settlements which take place over the course of a single day, but not at the exact same moment, would not meet this criterion, even if there were no substantive risks associated with the timing difference. FEE considers this guidance as more restrictive compared to current practice, and would prefer to allow netting in cases of non-existence of settlement risk for intraday offsetting transactions.
 
FEE believes that the proposed disclosures about rights to offset financial assets and financial liabilities of an entity and the related arrangements (including information on collateral and master netting agreements) would be welcome by many users with different needs. However, FEE is concerned that certain proposals will require significantly more detailed information than is currently the case, and that this may result in a disproportionate level of detail as compared with disclosure requirements in other areas.
 
FEE believes that the effective date of the proposals should not necessarily be aligned with the application of IFRS 9 Financial Instruments and could be an earlier date.

Comment letter


© FEE

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