In brief: FASB further clarifies the scope of balance sheet offsetting disclosures (No. 2013-01)
In brief
What's new?
At its January 9 meeting, the FASB discussed feedback on its exposure draft that proposes clarifications to the scope of the new balance sheet offsetting disclosures required by ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. The exposure draft proposes that the offsetting disclosures only be applied to derivatives, repurchase agreements, and securities lending transactions to the extent that they are subject to a master netting arrangement or similar agreement. This proposed scope clarification was in response to concerns raised by constituents in a variety of industries regarding the potentially broad scope of the new disclosure requirements. The comment period for the exposure draft ended in December 2012.
What are the key decisions?
The FASB concluded that it should proceed with the issuance of the scope clarification.
The FASB noted that several respondents requested clarification of what would be considered a derivative for the purposes of the new offsetting disclosures. The FASB concluded that for the purposes of these disclosure requirements
- the definition of a derivative should be limited to financial instruments that are accounted for as derivatives under ASC 815, Derivatives and Hedging, and
- bifurcated embedded derivatives should be explicitly included in the scope of the disclosure requirements.
In addition, the FASB concluded that the effective date and transition of the disclosure requirements in ASU 2011-11 will remain unchanged. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Entities will provide the new disclosures retrospectively for all comparative periods.
Is convergence achieved?
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, under U.S. GAAP and IFRS the disclosures will be the same for the transactions that are likely to result in the most significant differences in the presentation under U.S. GAAP and IFRS, namely derivatives, repurchase agreements, and securities lending agreements.
Who's affected?
The scope clarification affects all entities with financial instruments subject to a master netting arrangement or similar agreement that may have been affected by the new offsetting disclosure requirements.
What's the effective date?
An entity is required to apply the scope clarification for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. This date coincides with the effective date of the new offsetting disclosures.
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
In Brief is designed to provide a timely, high-level overview of significant financial reporting developments. It is issued by the National Professional Services Group of PwC. This publication is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. To access additional content on financial reporting issues, register for CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial executives.