FASB Issues Proposal for Clarifying Offsetting Related Guidance

Wednesday, November 28, 2012 Print Email

The FASB has released a proposal for updating Accounting Standards in its bid to clarify the scope of all the transactions that are subjected to disclosures with regard to offsetting of liabilities and assets on the balance sheet.

The Financial Accounting Standards Board has undertaken the project after the stakeholders from United States expressed their concerns regarding the definition of finance related instruments provided by the FASB standard. After the finalization of the standard, entities came to realize that several contracts come with standardized commercial based provisions, which would be equal to a netting based arrangement that would increase the compliance cost for the users of financial statements.

The stakeholders have been requested to review and share their comments with the FASB on the proposal to update accounting related standards by the 21st of December 2012.

Susan M. Cosper, Technical Director at FASB stated that the proposal for updating the standards will address queries that exit with regard to balance sheet offsetting guide’s scope which was released in 2011 by the Financial Accounting Standard Board. Cosper further mentioned that this would result in reduction of costs that are unintended while offering investors and users with relevant information that would help them in understanding the extent of offsetting some finance related instruments.

The update that has been proposed by the board would help in clarifying the scope of update no. 2011-11 of the Accounting Standards. The 2011-11 update will be applicable on derivatives, reverse purchase related agreements, repurchase related agreements as well as securities lending and borrowing transactions, which have either been offset according to certain criteria listed in FASB Accounting Standards Codification or are have been subjected to a netting based arrangement or same kind of arrangement.

The update 2011-11 was announced in the month of December last year and was essentially released after the FASB signed a project with the IASB. The primary aim of the project was to enhance comparability and transparency between United States Generally Accepted Accounting Principles and IFRS by demanding improved disclosures with regard to finance related instruments as well as derivative instruments, which have either been subjected to a netting arrangement that is enforceable or offset on the financial statement.  

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