IAS 32-Offsetting with regard to arrangements of cash pooling

The Interpretations Committee of IFRS has been requested to clarify if some particular arrangements of cash pooling between subsidiaries in a group can meet the requirements in offsetting IAS 32. A notional pooling arrangement was described by the submitter where interest is computed on net balance of separate bank accounts and regular balance transfers to a single account for netting. Under contractual arrangement terms, transfers like these would not be needed and the group and bank would normally have the requisite legal enforceable rights of setting the balances off under IAS 32 at the date of reporting.

The submitter enquired if the transfers described in the period shows an intention of settling the balances of the period on net basis in order to meet IAS 32 offsetting requirements.

Staff Recommendation

The staff reached out to various constituents and respondents said that it was not clear if the cash pooling arrangement described was common. Concerning the various accounting treatment, there were mixed views.

According to the analysis, the staff established that the accounting was dependent on facts of the individual and circumstances of every case and judgment needed. Moreover, the staff did not have any evidence of practice diversity especially when offsetting differences are attributable to differences in circumstances and facts. On this basis, staff makes recommendations that this issue should not be taken to its agenda.

Committee decision and discussion

Members of the committee generally supported the staff recommendation in issuing agenda decision. Nonetheless, various committee members had some struggles with some wordings in the projected tentative decision agenda, one member who referred to the Standard guidance instead of the judgment. The senior technical manager said that there were cases where judgment was needed. From the point of view of other members, the unknown amount was not going to affect the settling intention since an entity could have an intention of settling unknown amounts.

One of the members of the committee made suggestions clarifying if the amounts were expected would change subsequently if it was just a possibility. Also proposed was the fact that clarification was needed that this was a particular purpose and the decision may not applicable to other financial instruments like derivatives.