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FASB Plans Fix for Scope of Netting Disclosures

Tammy Whitehouse | November 26, 2012

The Financial Accounting Standards Board is preparing to revise new disclosure requirements around offsetting assets and liabilities to clarify that the requirements are focused on financial instruments and not meant to sweep in customer or supplier agreements.

FASB published a proposed Accounting Standards Update to clear up confusion over the scope of earlier guidance it finalized in 2011 to take effect with the opening of the 2013 calendar year. The 2011 guidance, ASU 2011-11, requires companies that have assets and liabilities that are offset against one another and presented on a net basis, such as derivative contracts or repurchase agreements, to provide new disclosures about the full scope of such instruments.

As companies have studied the guidance and prepared to implement it, questions arose about whether the disclosure requirements could apply beyond the financial instruments that FASB was targeting. Nick Cyprus, vice president, controller and chief accounting officer at General Motors, wrote to FASB to point out that the guidance as written would seem to take in GM's sizable cache of customer and supplier agreements, even though FASB didn't focus on those types of assets and liabilities as it developed the new rules.

That prompted FASB to publish its latest proposed ASU to specify that ASU 2011-11 would apply to derivatives, repurchase agreements, reverse purchase agreements,  securities borrowing, and securities lending transactions that are either offset in accordance with specific criteria contained in accounting standards or subject to a master netting arrangement or similar agreement. That would effectively scope out the customer and supplier agreements that concerned accounting officers like Cyprus.

FASB Technical Director Susan Cosper said in a statement that the newly published proposal is intended to reduce the unintended costs of implementing ASU 2011-11 while still providing investors and other users of financial statements the information they need about financial instruments that are offset and presented on a net basis under master netting arrangements.

FASB is accepting comments only through Dec. 21, and it is asking for any other concerns that companies might have about other instruments that might still be swept inadvertently into the requirement.