IASB clarifies offsetting model, issues new disclosure requirements 

The International Accounting Standards Board today confirmed that it will retain its existing model for offsetting financial assets and liabilities. The IASB has instead issued amendments to its standards[1] clarifying how the current model should be applied and requiring new disclosures about offsetting.  The US Financial Accounting Standards Board has issued similar disclosure requirements under US GAAP.

Andrew Vials, KPMG’s Global IFRS Financial Instruments Leader, said: “It is disappointing that the IASB and the FASB have not been able to achieve convergence between IFRS and US GAAP offsetting requirements.  However, users of financial statements will benefit from greater consistency in the application of IFRSs while the required disclosures will provide greater comparability between IFRS and US GAAP reporters.”

However, many companies will find that application of the IFRS clarifications will come at a cost. Although the IASB has said it always intended the offsetting criteria to be applied in the manner clarified by the amendments, the impact of stepping into line could be significant for some.

Colin Martin, Head of Assurance Services, Banking at KPMG in the UK, explained: “Companies may have to revisit contracts, and might even require legal assistance. In some cases they may decide to amend the terms of contracts or change counterparties so as to comply with the clarified offsetting criteria.”

Financial institutions are most likely to be affected. In particular, transactions through clearing houses may need to be scrutinised in order to understand whether they comply with the clarified criteria.

There may be wider business implications for some entities, as calculations based on IFRS financial statements may be affected. For example, amounts of some taxes and employee remuneration based on reported IFRS assets might change, while some companies may face difficulties with debt covenants based on reported IFRS liabilities or gearing.

Martin concluded: “Companies should manage stakeholders’ expectations, and communicate any impacts that are likely to be significant before the Amendments come into effect.”

The new disclosure requirements are effective for annual periods beginning 1 January 2013. The clarified offsetting criteria are effective for annual periods beginning 1 January 2014.

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