In December 2011, the IASB issued amendments to IAS 32 and IFRS 7 to clarify when assets and liabilities could be offset and the disclosures required in those cases. The amendments do not change the current offsetting model in IAS 32, which requires an entity to offset a financial asset and financial liability in the statement of financial position only when the entity currently has a legally enforceable right of set-off and intends either to settle the asset and liability on a net basis or to realize the asset and settle the liability simultaneously. However, the amendments clarify that the right of set-off must be available today (e.g. not contingent on any future event) and be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy.
The amendments also clarify that gross settlement mechanisms (such as through a clearing house) with features that both (i) eliminate credit and liquidity risk and (ii) process receivables and payables in a single settlement process, would qualify for offset. By contrast, master netting agreements which involve a legal right of offset only on the occurrence of a future event (e.g. default of the counterparty) continue not to qualify.
Additional disclosures have been added which focus on quantitative information about recognized financial instruments that are offset and details about master netting or similar arrangements, whether or not such arrangements are offset. These amendments are mandatorily effective for annual periods beginning on or after January 1, 2014 with early adoption permitted.