A debtor having a valid right of setoff may offset the related asset and liability and report the net amount.
If a party does not intend to set off even though the ability to set off exists, an offsetting presentation in the statement of financial position is not representationally faithful.
Acknowledgment of the intent to set off by the reporting party and, if applicable, demonstration of the execution of the setoff in similar situations meet the criterion of intent.
The offset of cash or other assets against the tax liability or other amounts owing to governmental bodies shall not be acceptable except in the circumstances described in the following paragraph.
Most securities issued by governments are not by their terms designed specifically for the payment of taxes and, accordingly, shall not be deducted from taxes payable on the balance sheet. The only exception to this general principle occurs when it is clear that a purchase of securities (acceptable for the payment of taxes) is in substance an advance payment of taxes that will be payable in the relatively near future, so that in the special circumstances the purchase is tantamount to the prepayment of taxes. This occurs at times, for example, as an accommodation to a local government and in some instances when governments issue securities that are specifically designated as being acceptable for the payment of taxes of those governments.
The phrase enforceable at law encompasses the idea that the right of setoff should be upheld in bankruptcy. The nature of support required for an assertion in financial statements that a right of setoff is enforceable at law is subject to a cost-benefit constraint and depends on facts and circumstances. All of the information that is available, either supporting or questioning enforceability, should be considered. Offsetting is appropriate only if the available evidence, both positive and negative, indicates that there is reasonable assurance that the right of setoff would be upheld in bankruptcy.
The entity's choice to offset or not shall be applied consistently. Net receivables resulting from the application of this Subtopic shall not be offset against net payables resulting from the application of this Subtopic in the statement of financial position.
Under associated banking arrangements, each party to a same-day settlement of both a repurchase agreement and a reverse repurchase agreement would be obligated to pay a gross amount of cash for the securities transferred from its counterparty but would be able to reduce that gross obligation by notifying its securities custodian to transfer other securities to that counterparty the same day.
If both parties transfer the appropriate securities in settlement of the repurchase and reverse repurchase agreements, the party with a net receivable will not need any cash to facilitate the settlement, while the party with a net payable will need only to have available the required net amount due at the end of the business day.