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Financial Reporting Update Issue 69 – January 2012


Clarified financial assets and liabilities offsetting requirements and Deferral of mandatory effective date of HKFRS 9


5 January 2012

 

 

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In the Headlines Issue 2011/39

 

In the Headlines Issue 2011/40

 

Amendments to HKAS 32 – Offsetting financial assets and financial liabilities

 

Amendments to HKFRS 7 – Disclosures – Offsetting financial assets and financial liabilities

 

Amendments to HKFRS 9 and HKFRS 7 – Mandatory effective date and transition disclosures

 

 

 

 

The HKICPA has recently issued several amendments to its financial instrument standards: HKAS 32, Financial instruments: Presentation, HKFRS 7, Financial instruments: Disclosures and HKFRS 9, Financial instruments, to maintain convergence of HKFRS with IFRS. The amendments are identical to those made to IAS 32, IFRS 7 and IFRS 9, issued by the IASB in December 2011, with the same effective dates and transitional provisions.

 

Clarified offsetting requirements and amended offsetting disclosures

 

In January 2011, the IASB and the U.S. FASB jointly issued an exposure draft to propose a common approach to offsetting financial assets and financial liabilities. In view of the feedback received on the ED, the Boards decided to maintain their current offsetting models, but agreed on common offsetting disclosure requirements to improve comparability of IFRS and U.S. GAAP financial statements and to enable users to evaluate the effect or potential effect of netting arrangements on the entity’s financial position. As a result, the IASB amended IFRS 7 by introducing new offsetting disclosure requirements. As part of the offsetting project, the IASB also clarified the offsetting requirements by adding application guidance to IAS 32.

 

The existing offsetting requirements in HKAS 32.42 are that a financial asset and financial liability should be offset when, and only when, the entity:

·       currently has a legally enforceable right to set off the recognised amounts; and

·       intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

 

The additional guidance does not change these requirements but clarifies when the entity currently has a legally enforceable right to set off and when a gross settlement mechanism is considered equivalent to net settlement. 

 

In respect of the amended offsetting disclosure requirements, the amendments to HKFRS 7 introduce new disclosures for all recognised financial instruments that are set off under HKAS 32.42 and those that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off under HKAS 32.42.

 

The amendments to HKFRS 7 are effective for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. The amendments to HKAS 32 are effective for annual periods beginning on or after 1 January 2014. Both amendments are to be applied retrospectively.

 

Deferral of mandatory effective date of HKFRS 9

 

The source of HKFRS 9, IFRS 9, is the result of the IASB’s phased project to replace IAS 39. The first finalised parts of IFRS 9, and consequently of HKFRS 9, which cover classification, measurement and derecognition of financial assets and liabilities, were issued in 2009 and 2010 but had a mandatory effective date of annual periods beginning on or after 1 January 2013, in anticipation that the remaining parts of IFRS 9 would be completed in 2011. As this goal of completing the remaining two phases (impairment and hedge accounting) by 2011 has not been achieved, the IASB has deferred the mandatory effective date of IFRS 9 to annual periods beginning on or after 1 January 2015. Early application continues to be permitted.

 

In addition, the relief from restating comparatives when adopting HKFRS 9 for the first time has been modified and new transition disclosures, including a reconciliation of closing HKAS 39 balances to opening HKFRS 9 balances, have been introduced to HKFRS 7, which are applicable to the first financial statements in which HKFRS 9 is initially adopted.

A quick overview and a brief discussion of the potential impacts of these amendments can be found in our In the Headlines publication (Issues 2011/39 and 2011/40). Copies of the publications, issued by KPMG International, are available on our website, www.kpmg.com/cn, by following the links in the information column to the right. If you would like further assistance on the matters discussed, please talk with your usual KPMG contact.

KPMG China's Financial Reporting Updates are produced regularly to highlight developments in Hong Kong Financial Reporting Standards. If at any time you would like further information on the matters discussed in the Updates, please talk to your usual KPMG contact. An archive of recent issues of Financial Reporting Update can be found at http://www.kpmg.com/cn/en/IssuesAndInsights/

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