FASB: Proposal to clarify scope of disclosures that apply to balance sheet offsetting of assets and liabilities

26 November 2012

The FASB issued for public comment a proposed ASU — Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities — that would clarify the scope of transactions that are subject to the disclosures about offsetting. Comments are requested by December 21, 2012.

"This proposed Update addresses questions surrounding the scope of balance sheet offsetting guidance issued last year by the FASB”, said FASB Technical Director Susan M Cosper. “The goal is to 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 Board’s proposed Update would clarify the scope of ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, Update 2011-11 would apply 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 last December, Update 2011-11 was the result of a joint project with the International Accounting Standards Board. Its objective was to improve transparency and comparability between US GAAP and International Financial Reporting Standards 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.

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