FASB Issues Accounting Standards Update Clarifying Scope of Disclosures That Apply to Balance Sheet Offsetting of Assets and Liabilities

NORWALK, Conn.--(BUSINESS WIRE)--The Financial Accounting Standards Board (FASB) today issued an Accounting Standards Update, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The Update clarifies the scope of transactions that are subject to the disclosures about offsetting.

“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.”

“This Update addresses stakeholder questions about the scope of balance sheet offsetting guidance issued by the FASB at the end of 2011,” said FASB Technical Director Susan M. Cosper. “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.”

The Update clarifies that ordinary trade receivables and receivables are not in the scope of Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, Update 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.

Issued in December 2011, Update 2011-11 was the result of a joint project with the International Accounting Standards Board. Its objective was to improve transparency and comparability between U.S. GAAP and International Financial Reporting Standards by requiring enhanced disclosures about financial instruments and derivative instruments that are either (1) offset on the statement of financial position or (2) subject to an enforceable master netting arrangement or similar agreement.

The Board undertook this clarification project in response to concerns expressed by U.S. stakeholders about the standard’s broad definition of financial instruments. 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 is available on the FASB website. More information is available about this and other FASB projects at www.fasb.org.

About the Financial Accounting Standards Board

Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.