IASB and FASB propose netting workaround
Gap between US and international rules for netting of derivatives assets and liabilities prove too difficult to bridge
NEW DISCLOSURE REQUIREMENTS will attempt to straddle the difference in netting accounting between US and international accounting standards.
US accounting rules allow a net figure for derivatives assets and liabilities even when there is an absence to settle net deals, which differs for international financial reporting standards (IFRS).
Plans to narrow US rules to fit more closely to IFRS have been shelved. Instead, new disclosure requirements will allow investors to compare financial statement compared in IFRS or US GAAP.
The requirements also intend to improve transparency of how companies mitigate credit risk, including disclosure of collateral pledged or received.
Hans Hoogervorst, chairman of the IASB, said: “These disclosures will help investors to bridge differences in the offsetting reporting requirements of IFRSs and US GAAP, while the additional requirements will also provide better information on how companies mitigate credit risk related to offsetting.
“That said, using disclosures to bridge differences in offsetting requirements was plan B for both boards.”
Leslie Seidman, FASB chairman said: “The expanded disclosures are responsive to the feedback we received from investors, who wanted to understand both the gross and the net amounts for items offset in accordance with legally enforceable netting arrangements. We are also requiring expanded information about the collateral pledged and held in these arrangements.”
Companies and other entities are required to apply the amendments for annual reporting periods beginning on or after 1 January 2013 and interim periods within those annual periods. The required disclosures should be provided retrospectively.