ISDA: Net basis derivatives reporting works

LONDON, Monday, January 31, 2011 – The International Swaps and Derivatives Association, Inc. (ISDA) welcomes the efforts of the International Accounting Standards Board and the Financial Accounting Standards Board to seek convergence on their current US GAAP and IFRS models regarding offsetting of assets and liabilities in the balance sheet.

ISDA believes that reporting derivatives positions on a net basis where netting is enforceable gives the best information for users of financial statements. Net presentation is consistent both with the way derivatives are managed by the entity and with the regulatory treatment of them. It therefore provides the most relevant and risk sensitive information.

ISDA believes the Boards' proposal to report derivatives on a gross basis rather than a net basis on the balance sheet is counterintuitive, may lead to complexity in practice and can obscure the real position of the entity. It is likely to be misleading when presenting the leverage, credit risk and liquidity risk position of an institution. Misperceptions regarding the risk exposure of derivatives users may impede the ability of corporations, government entities and financial institutions to effectively manage the business and financial risks to which they are exposed.

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