What Investors Need to Know about Financial Instruments Offsetting in Post-Crisis World

In the post-crisis era, investors are increasingly interested in developments regarding financial institutions, particularly as banks raise capital. In December 2011, the International Accounting Standards Board (IASB) introduced disclosure requirements to help investors evaluate the effect of netting arrangements related to financial instruments on an entity’s financial position. The updated requirements aim to help investors better assess financial instruments-related risk exposures. The new disclosures also will allow investors to better compare International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP) financial statements.

IASB member Patrick Finnegan, CFA, Fred Nieto, CFA, of the IFRS Education Initiative, and Vincent Papa, CFA, director of financial reporting policy at CFA Institute, discuss the rationale for changes, specific changes, effective dates, and analytical implications of these updated requirements.

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