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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Accounting for corporate finance: International Accounting Standards: IAS 32: offsetting

When can offsetting occur?

‘Offsetting’ is where a financial asset and a financial liability are netted off in the Balance Sheet.

IAS 32 therefore allows offsetting only when:

  • a company has a legally enforceable right to set off the recognised amounts, and
  • it intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

‘Simultaneously’ here really does mean occurring at the same moment. If there is a gap, even a brief gap, between realising an asset and settling a liability, the company becomes exposed to credit risk for the full amount of the asset or liquidity risk for the full amount of the liability. Such risk exposures may be significant even if relatively brief.

There are examples at CFM21300.

It will be unusual for the conditions for offsetting to be satisfied. CFM21310 tells you more about situations in which offsetting is inappropriate.

CFM21320 looks at offsetting in the context of a master netting agreement.