FASB proposes narrowing scope of offsetting disclosures

A new proposal would narrow the definition of financial instruments in FASB’s recently implemented standard on disclosures about offsetting assets and liabilities.

FASB on Monday issued a Proposed Accounting Standards Update (ASU), Balance Sheet (Topic 210): Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities. Comments from stakeholders are due Dec. 21.

Disclosures will apply to derivatives, repurchase agreements, and reverse purchase agreements, as well as securities borrowing and securities lending transactions that are offset in accordance with FASB criteria or subject to a master netting arrangement or similar agreement.

Last December, FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures About Offsetting Assets and Liabilities. The standard was the result of a joint FASB project with the International Accounting Standards Board and was created to improve transparency and comparability between U.S. GAAP and IFRS.

The standard requires enhanced disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or a similar agreement.

After the standard was finalized, companies realized that many contracts have standard commercial provisions that would equate to a master netting arrangement. As a result, FASB decided to narrow the definition of financial instruments in ASU No. 2011-11 to prevent unnecessary compliance costs for situations where disclosures would provide minimal value to users.

“The goal is to reduce unintended costs while providing investors and other users with the information they need,” FASB Technical Director Susan Cosper said in a statement.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.