A company nets a financial asset owed to it by one counterparty against a financial liability it owes to a different counterparty, presenting only the net amount in its statement of financial position, on the basis that it expects to settle both amounts around the same time. No IFRS Standard specifically requires or permits offsetting in this situation. Under IAS 1, is this presentation permitted?
- No — IAS 1 prohibits offsetting assets and liabilities, or income and expenses, unless another IFRS Standard specifically requires or permits it
- Yes, because presenting the net amount always provides more relevant information about the entity's exposure than presenting the gross amounts separately
- Yes, provided the entity discloses both the gross amounts and the net amount together in the notes
- No, but only because the two amounts are owed to and by different counterparties; offsetting would otherwise be permitted between amounts owed to and by the same counterparty without any further condition
Why A? And why not the others?
Correct answer: A. No — IAS 1 prohibits offsetting assets and liabilities, or income and expenses, unless another IFRS Standard specifically requires or permits it
IAS 1 establishes offsetting as prohibited by default: an entity shall not offset assets and liabilities, or income and expenses, unless offsetting is specifically required or permitted by an IFRS Standard. Because no Standard authorises offsetting on these facts, presenting only the net amount is not permitted regardless of any expectation about settlement timing. The option claiming net presentation is 'always' more relevant gets the default backwards — the starting position under IAS 1 is that gross presentation is required unless a Standard says otherwise, precisely because netting can obscure the separate asset and liability exposures. The option suggesting that disclosing both gross and net figures in the notes cures the problem misunderstands that offsetting is a presentation issue: showing a net figure on the face of the statement while relegating the gross figures to a footnote does not comply with a rule about how the primary statements themselves must be presented. The option focused on the counterparties being different implies that offsetting would automatically be fine between amounts owed to and by the same counterparty, but the financial-instrument offsetting criteria in IFRS require both an enforceable legal right of set-off and an intention to settle net or simultaneously — same-counterparty status alone does not satisfy those conditions either.
Source: IAS 1 Presentation of Financial Statements, paragraph 32 (offsetting)