The International Accounting Standards Board (IASB) and US-based Financial Accounting Standards Board (FASB) have published a proposal to establish a common solution to offsetting financial assets and financial liabilities on the balance sheet.
The boards are keen to eliminate this conflict that involves different rules about when financial assets and financial liabilities may be presented, depending on whether the entity reports using IFRS or US GAAP.
The Offsetting Financial Assets and Financial Liabilities exposure draft is an attempt to address this and is in response to concerns expressed by users and preparers of financial statements. The problem has also been raised by the G20 and the Financial Stability Board.
The issue is particularly prevalent in the presentation of derivative assets and derivative liabilities by financial institutions.
The boards are proposing that offsetting should apply only when the right of set-off is enforceable at all times, including in default and bankruptcy, and the ability to exercise this right is unconditional, that is, it does not depend on a future event.