In brief: FASB amends and clarifies scope of balance sheet offsetting disclosures (No. 2012-48)

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Over the past several months, issuers and other constituents in a variety of industries have raised concerns to the FASB staff and board regarding the scope of the new balance sheet offsetting disclosure requirements required by Accounting Standards Update 2011-11, Disclosures about Offsetting Assets and Liabilities. In response to these concerns, at its October 31 meeting the FASB decided to amend and clarify the scope of the balance sheet offsetting disclosures. These disclosures are effective in Q1 2013 for calendar year-end companies. This In brief article provides an overview of the FASB's decision and what's next.

What's new?

Over the past several months, issuers and other constituents in a variety of industries have raised concerns to the FASB staff and board regarding the scope of the new balance sheet offsetting disclosure requirements. In response to these concerns, at its October 31 meeting the FASB decided to amend and clarify the scope of the balance sheet offsetting disclosures. These disclosures are effective in Q1 2013 for calendar year-end companies.

Background

In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities (the "ASU"). The new disclosures require that entities disclose both gross and net information about recognized financial instruments and derivative instruments that are:

• offset in the statement of financial position (in accordance with either ASC 210-20-45 or ASC 815-10-45), or
• subject to an enforceable master netting arrangement or similar agreement irrespective of whether they are offset in the statement of financial position.

During the deliberations of the ASU, board discussions were focused primarily on instruments that are traditionally offset in the financial statements or subject to master netting agreements such as derivatives and repurchase agreements. However, the scope of the ASU includes all transactions governed by master netting agreements or similar agreements regardless of whether the transactions are offset or are eligible for offset in the balance sheet. As a result, the new guidance also includes arrangements that may exist outside the financial services industry.

What are the key decisions? 

In response to the concerns raised, the FASB decided to amend and clarify the scope of the disclosures to include only derivatives, repurchase agreements and securities lending transactions. The board plans to release an exposure draft with the revised scope language in the coming weeks. During the comment period for the exposure draft, the FASB staff may perform additional outreach to gain a better understanding of the extent of those transactions that would be excluded from the disclosure as a result of the revised scope language. Such outreach may include obtaining information regarding balances that are being offset on the balance sheet, but would not be included in the new disclosures.

Is convergence achieved? 

In the ASU, the FASB and IASB did achieve convergence on the disclosure requirements, but did not converge on the requirements to offset balances in the statement in financial statements. The proposed change in the scope language for U.S. GAAP reporting could create differences between the disclosures reported under U.S. GAAP and IFRS. However, the transactions that result in the most significant differences in the presentation under U.S. GAAP and IFRS, namely derivatives, repurchase agreements, and securities lending agreements will be addressed in these disclosure requirements. These transactions were the drivers behind the respective boards' offsetting projects.

Who's affected?

The ASU will impact entities with agreements that would have otherwise required disclosure in accordance with the ASU. However, entities with derivative assets and derivative liabilities, repurchase agreements, and securities lending arrangements will require additional disclosures as originally provided for.

What's the effective date? 

An entity is required to apply the disclosures for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.

What's next?

An exposure draft is expected during November 2012.

Questions?

PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the Financial Instruments team in the National Professional Services Group (1-973-236-7803).

Authored by:

Chip Currie
Partner
Phone: 1-973-236-5331
Email: frederick.currie@us.pwc.com

Kristin Derington-Ruiz
Senior Manager
Phone: 1-973-236-7093
Email: kristin.derington-ruiz@us.pwc.com

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