Nothin' But Net: FASB, IASB Release Proposed Amendment To Netting (Offsetting) Requirements

If your weekend reading did not include Friday's proposal(s) released by the FASB and IASB to align their requirements on netting (offsetting) of balance sheet items, you can view them now: see FASB's proposal ("Proposed Accounting Standards Update—Balance Sheet (Topic 210): Offsetting") and IASB's proposal ("Exposure Draft ED/2011/1 - Offsetting Financial Assets and Financial Liabilities"). The comment deadline on each proposal is April 28.

The jist of the proposal(s) is (are) described in the IASB and FASB's joint press release:

Offsetting, otherwise known as netting, takes place when entities present their rights and obligations to each other as a net amount in their statement of financial position.

At present, the circumstances when financial assets and financial liabilities may be presented in an entity’s statement of financial position as a single net amount, or as two gross amounts, differs depending on whether the entity reports using International Financial Reporting Standards (IFRSs) or US generally accepted accounting principles (GAAP).

The accounting differences result in the single largest quantitative difference in reported numbers in statements of financial position prepared in accordance with
IFRSs or US GAAP...

The boards are proposing that offsetting should apply only when the right of set-off is enforceable at all times, including in default and bankruptcy, and the ability to exercise this right is unconditional, that is, it does not depend on a future event. The entities involved must intend to settle the amounts due with a single payment or simultaneously. Provided all of these requirements are met, offsetting would be required. The proposals would amend IFRSs and US GAAP and eliminate several industry-specific netting practices.

The joint press release includes links to an IASB webcast conducted earlier today on the offsetting proposal, as well as an IASB 'Snapshot Summary' of the document. A 'FASB in Focus' summary of their proposal is forthcoming on www.fasb.org.

Those of you expecting to see a McDonald's commercial starring basketball players based on the title of this blog post, we don't want to disappoint you: here is the 2010 Nothin' But Net commercial; and if you don't recognize the fellow at the end of that video, see the 1993 Nothin' But Net.

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