FASB Clarifies Scope of Balance Sheet Offsetting Disclosures

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By Frank Byrt

On January 31, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-01, Balance Sheet: Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which narrows the scope of ASU No. 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities, issued in December 2011.

According to FASB's January 31 news release, the update clarifies that ordinary trade receivables and receivables are not in the scope of ASU No. 2011-11, and, specifically, ASU No. 2011-11 applies only to:

  • Derivatives;
  • Repurchase agreements and reverse purchase agreements; and
  • Securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification® or subject to a master netting arrangement or similar agreement.

In its press release, FASB said it undertook the clarification project in response to concerns expressed by US stakeholders about ASU No. 2011-11's broad definition of financial instruments as well as concerns about increased costs. "After the standard was finalized, companies realized that many contracts have standard commercial provisions that would equate to a master netting arrangement, significantly increasing the cost of compliance at minimal value to financial statement users." 

"The Update will reduce unintended costs while providing investors and other users with the information they need to understand the extent to which certain financial instruments are offset pursuant to master netting arrangements", said FASB Technical Director Susan M. Cosper in FASB's press release.

A spokeswoman for the Financial Accounting Foundation (FAF), which oversees FASB, told AccountingWEB that the clarification came as a result of feedback in the form of twenty-seven comment letters from a variety of organizations, including several accounting firms, financial institutions, and an unsolicited letter from General Motors Vice President and CAO Nick S. Cyprus.

In his letter, Cyprus asked FASB to exclude short-term trade receivables and payables that could result in reporting differences between US GAAP and International Financial Reporting Standards (IFRS).

In ASU No. 2013-01, FASB concluded "that the clarified scope will reduce significantly the operability concerns expressed by preparers while still providing decision-useful information about certain transactions involving master netting arrangements. The amendments provide a user of financial statements with comparable information as it relates to certain reconciling differences between financial statements prepared in accordance with US GAAP and those financial statements prepared in accordance with IFRS." 

The new reporting standards apply to annual reporting periods beginning January 1, 2013, and interim periods within those annual periods.



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