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Financial Instruments - Asset Liability offsetting


This project addressed differences between US GAAP and IFRS on balance sheet netting of derivative contracts and other financial instruments. In response to stakeholders' concerns (including those of the Financial Stability Board and of the Basel Committee on banking supervision) the FASB and the IASB decided in June 2010 to jointly work on a separate exposure draft on this topic. The Boards issued the Exposure Draft Offsetting Financial Assets and Financial Liabilities in January 2011. The proposals in the exposure draft were based on the existing offsetting criteria in IAS 32 Financial Instruments: Presentation. EFRAG supported the direction taken by the IASB in this area in its final comment letter issued 29 April 2011. The accounting differences in netting under US GAAP and IFRS result in the single largest quantitative difference in reported numbers in statements of financial position prepared in accordance with those norms. This reduces the comparability of financial statements, and is especially prominent in the presentation of derivative instruments. The IASB and the FASB decided to adopt divergent approaches to the offsetting criteria and to work jointly on converged disclosure requirements.

On 16 December 2011 the IASB and FASB issued common disclosure requirements that were intended to help users to better assess the effect or potential effect of offsetting arrangements on a company's financial position. The new requirements were set out in Disclosures-Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7). The IASB also clarified its requirements for offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32). The amendments addressed inconsistencies in current practice when applying the offsetting criteria in IAS 32 Financial Instruments: Presentation.

On 6 April 2012, EFRAG issued its Endorsement Advice Letter and Effects Study Report relating to the endorsement of the Amendments to IAS 32 and IFRS 7 for use in the European Union and European Economic Area. EFRAG supported the Amendments and concluded that they met the technical requirements of endorsement in the EU. EFRAG also concluded that the benefits of the Amendments outweigh the costs.

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