International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 844
whether recognised or not as well as actual collateral pledged. The amounts
disclosed should not relate to any payables or receivables recognised to return
or receive back such collateral. [IFRS 7.B48]. The amounts disclosed for collateral
would exclude non-financial collateral, for instance, land and buildings.
Financial
instruments:
Presentation and disclosure 4259
References to Amounts (a), (b), et seq. can be traced through to Example 50.16
at 7.4.2.D below.
The total amount included in Amount (d) for any instrument is limited to the
amount included in Amount (c) for that instrument. [IFRS 7.13D]. In other words, an
entity takes into account the effects of over-collateralisation by financial
instrument, so that, for example, an over-collateralisation on one asset does not
make an under-collateralisation on another. To do so, it first deducts the amounts
included in Amount (d)(i) from the amount included in Amount (c). It then limits
the amounts included in Amount (d)(ii) to the remaining amount in Amount (c) for
the related financial instrument. However, if rights to collateral are available to
cover multiple contracts with the same counterparty, for example through a cross
collateralisation agreement, such rights can be taken into account in arriving at
Amount (d)(ii). [IFRS 7.B49].
Entities should provide a description of the rights of set-off associated with the
entity’s financial instruments included in Amount (d), including the nature and type
of those rights. For example, conditional rights would need to be described. For
instruments subject to rights of set-off that are not contingent on a future event but
that do not meet the remaining criteria in IAS 32, the description should include
the reasons why the criteria are not met. For any financial collateral received or
pledged, it would be appropriate to disclose the terms of the collateral (such as why
the collateral is restricted); [IFRS 7.13E, B50] and
• the net amount after deducting Amount (d) from Amount (c) [Amount (e)].
The financial instruments disclosed in accordance with the requirements above may be
subject to different measurement requirements, for example a payable related to a
repurchase agreement may be measured at amortised cost, while a derivative will be
measured at fair value. Instruments should be included at their recognised amounts and
any resulting measurement differences should be described in the related disclosures.
[IFRS 7.B42].
The disclosures may be grouped by type of financial instrument or transaction (e.g.
derivatives, repurchase and reverse repurchase agreements or securities borrowing and
securities lending agreements). [IFRS 7.B51].
Alternatively, disclosure of Amounts (a) to (c) may be grouped by type of financial
instrument with disclosure of Amounts (c) to (e) by counterparty. Amounts that are
individually significant in terms of total counterparty amounts should be separately
disclosed with the remaining individually insignificant counterparty amounts aggregated
into one line item. Names of the counterparties need not be given, although designation
of counterparties (Counterparty P, Counterparty Q, Counterparty R, etc.) should
remain consistent from year to year for the periods presented to maintain comparability.
Qualitative disclosures should be considered so that further information can be given
about the types of counterparties. [IFRS 7.B52].
If the above quantitative and qualitative disclosures are included in more than one note
to the financial statements, the amendments require the information in the individual
notes to be cross-referenced to each other. This is intended to increase the
transparency of the disclosures and enhance the value of information. [IFRS 7.13F].
4260 Chapter 50
7.4.2.D
Offsetting disclosures – illustrative examples
The amendment that introduced the disclosures related to offsetting financial
instruments provides the following example illustrating ways in which an entity might
provide the required quantitative disclosures described above. However, these
illustrations do not address all possible ways of applying the disclosure requirements.
[IFRS 7.IG40D].
Example 50.16: Illustration of offsetting disclosures
Background
An entity has entered into transactions subject to an enforceable master netting arrangement or similar
agreement with the following counterparties. The entity has the following recognised financial assets and
financial liabilities resulting from those transactions that meet the scope of the disclosure requirements.
Counterparty A:
The entity has a derivative asset (fair value of CU100 million) and a derivative liability (fair value of
CU80 million) with Counterparty A that meet the IAS 32 offsetting criteria. Consequently, the gross
derivative liability is set off against the gross derivative asset, resulting in the presentation of a net derivative
asset of CU20 million in the entity’s statement of financial position. Cash collateral has also been received
from Counterparty A for a portion of the net derivative asset (CU10 million). The cash collateral of
CU10 million does not meet the IAS 32 offsetting criteria, but it can be set off against the net amount of the
derivative asset and derivative liability in the case of default and insolvency or bankruptcy, in accordance
with an associated collateral arrangement.
Counterparty B:
The entity has a derivative asset (fair value of CU100 million) and a derivative liability (fair value of
CU80 million) with Counterparty B that do not meet the IAS 32 offsetting criteria, but which the entity has
the right to set off in the case of default and insolvency or bankruptcy. Consequently, the gross amount of the
derivative asset (CU100 million) and the gross amount of the derivative liability (CU80 million) are presented
separately in the entity’s statement of financial position.
Cash collateral has also been received from Counterparty B for the net amount of the derivative asset and
derivative liability (CU20 million). The cash collateral of CU20 million does not meet the IAS 32 offsetting
criteria, but it can be set off against the net amount of the derivative asset and derivative liability in the case
of default and insolvency or bankruptcy, in accordance with an associated collateral arrangement.
Counterparty C:
The entity has entered into a sale and repurchase agreement with Counterparty C that is accounted for as a
collateralised borrowing. The carrying amount of the financial assets (bonds) used as collateral and posted by
the entity for the transaction is CU79 million and their fair value is CU85 million. The carrying amount of
the collateralised borrowing (repo payable) is CU80 million.
The entity has also entered into a reverse sale and repurchase agreement with Counterparty C that is accounted
for as a collateralised lending. The fair value of the financial assets (bonds) received as collateral (and not
recognised in the entity’s statement of financial position) is CU105 million. The carrying amount of the
collateralised lending (reverse repo receivable) is CU90 million.
The transactions are subject to a global master repurchase agreement with a right of set-off only in
def
ault and insolvency or bankruptcy and therefore do not meet the IAS 32 offsetting criteria.
Consequently, the related repo payable and repo receivable are presented separately in the entity’s
statement of financial position.
Financial
instruments:
Presentation and disclosure 4261
Illustration of the disclosures by type of financial instrument
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
CU million
As at 31
(a) (b)
(c)=(a)–(b)
(d)
(e)=(c)–(d)
December
Related amounts not set
20XX
off in the statement of
financial position
Gross
Gross amounts of Net amounts of (d)(i), (d)(ii)
(d)(ii)
Net amount
amounts of
recognised
financial assets
Financial
Cash
recognised
financial liabilities presented in the instruments
collateral
financial
set off in the
statement of
received
assets
statement of
financial
financial position
position
Description
Derivatives
200
(80)
120
(80)
(30)
10
Reverse
repurchase,
securities
borrowing and
similar
agreements 90
–
90
(90)
–
–
Other financial
instruments –
–
–
–
–
–
Total 290
(80)
210
(170)
(30)
10
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
CU million
As at 31
(a) (b)
(c)=(a)–(b)
(d)
(e)=(c)–(d)
December
Related amounts not set
20XX
off in the statement of
financial position
Gross amounts Gross amounts
Net amounts of
(d)(i), (d)(ii)
(d)(ii)
Net amount
of recognised
of recognised
financial
Financial
Cash
financial
financial assets
liabilities
instruments
collateral
liabilities
set off in the
presented
pledged
statement of
in the statement
financial
of financial
position
position
Description
Derivatives
160
(80)
80
(80)
–
–
Repurchase,
securities
lending and
similar
agreements 80 –
80
(80)
–
–
Other
financial
instruments – –
–
–
–
–
Total 240
(80)
160
(160)
–
–
4262 Chapter 50
Illustration of amounts offset disclosed by type of financial instrument and amounts not offset by counterparty
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
CU million
As at 31 December 20XX
(a)
(b)
(c)=(a)–(b)
Gross
Gross
Net amounts of
amounts of
amounts of
financial assets
recognised
recognised
presented in the
financial
financial
statement of
assets
liabilities set
financial position
off
in the
statement of
financial
position
Description
Derivatives
200
(80)
120
Reverse repurchase, securities borrowing and similar
agreements 90
–
90
Other financial instruments
–
–
–
Total 290
(80)
210
Net financial assets subject to enforceable master netting arrangements and similar agreements, by
counterparty
CU million
As at 31 December 20XX
(c)
(d)
(e)=(c)–(d)
Related amounts not set off in
the statement of financial
position
Net amounts of
(d)(i), (d)(ii)
(d)(ii)
Net amount
financial assets
Financial
Cash collateral
presented in the
instruments
received
statement of
financial
position
Counterparty A
20
–
(10) 10
Counterparty B
100
(80)
(20)
–
Counterparty C
90
(90)
–
–
Other
–
–
–
–
Total 210
(170)
(30)
10
Financial
instruments:
Presentation and disclosure 4263
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
CU million
As at 31 December 20XX
(a) (b)
(c)=(a)–(b)
Gross
Gross
Net amounts of
amounts of
amounts of
financial
recognised
recognised
liabilities
financial
financial
presented in the
liabilities
assets set off
statement of
in the
financial position
statement of
financial
position
Description
Derivatives
160
(80)
80
Repurchase, securities lending and
similar agreements
80
–
80
Other financial instruments
–
–
–
Total 240
(80)
160
Net financial liabilities subject to enforceable master netting arrangements and s
imilar agreements, by
counterparty
CU million
As at 31 December 20XX
(c)
(d)
(e)=(c)–(d)
Related amounts not set off in
the statement of financial
position
Net amounts of (d)(i), (d)(ii)
(d)(ii)
Net amount
financial
Financial
Cash collateral
liabilities
instruments
pledged
presented in the
statement of
financial
position
Counterparty A
–
–
–
–
Counterparty B
80
(80)
–
–
Counterparty C
80
(80)
–
–
Other
–
–
–
–
Total 160
(160)
–
–
4264 Chapter 50
BP provides the following disclosures about the extent of its offsetting.
Extract 50.10: BP p.l.c. (2014)
Notes on financial statements[extract]
27. Financial instruments and financial risk factors [extract]
(b) Credit risk [extract]
Financial instruments subject to offsetting, enforceable master netting arrangements and similar agreements
The following table shows the gross amounts of recognized financial assets and liabilities (i.e. before offsetting) and
the amounts offset in the balance sheet.
Amounts which cannot be offset under IFRS, but which could be settled net under the terms of master netting
agreements if certain conditions arise, and collateral received or pledged, are also shown in the table to show the total net exposure of the group.
$ million
Related amounts not set
off in the balance sheet
Gross amounts
Net amounts
Master