date of the statement (or statements, if multiple dates are presented for comparative purposes).
The entity's legal name appears in the heading exactly as specified in the document that created it (e.g., the certificate of incorporation, partnership agreement, LLC operating agreement, etc.). The legal form of the entity is often evident from its name when the name includes such designations as “incorporated,” “LLP,” or “LLC.” Otherwise, the legal form is either captioned as part of the heading or disclosed in the notes to the financial statements. A few examples are as follows:
ABC Company
(a general partnership)
ABC Company
(a sole proprietorship)
ABC Company
(a division of DEF, Inc.)
The use of the titles “statement of financial position,” “balance sheet,” or “statement of financial condition” infers that the statement is presented using generally accepted accounting principles. If, instead, some other comprehensive basis of accounting, such as income tax basis or cash basis is used, the financial statement title must be revised to reflect this variation. The use of a title such as “Statements of Assets and Liabilities—Income Tax Basis” is necessary to differentiate the financial statement being presented from a GAAP statement of financial position.
The last day of the fiscal period is used as the statement date. Usually, this is a month‐end date unless the entity uses a fiscal reporting period always ending on a particular day of the week such as Friday or Sunday. In these cases, the statement of financial position would be dated accordingly (i.e., December 26, October 1, etc.).
Statements of financial position generally are uniform in appearance from one period to the next with consistently followed form, terminology, captions, and patterns of combining insignificant items. If changes in the manner of presentation are made when comparative statements are presented, the prior year's information must be restated to conform to the current year's presentation.
The classification and presentation of information in a statement of financial position may be highly aggregated, highly detailed, or anywhere in between. In general, highly aggregated statements of financial position are used in annual reports and other presentations provided to the public. Highly detailed statements of financial position are used internally by the entity. The following highly aggregated statement of financial position includes only a few line items. The additional details required by GAAP are found in the notes to the financial statements.
ASC 210‐20, Offsetting
Presentation In general, a debtor entity may offset assets and liabilities against each other if a right of setoff exists and certain specified criteria are met. (ASC 210‐20‐45‐2) The Codification permits offsetting when all four criteria listed below are met:
1 Each of the two parties owes the other determinable amounts (although they may be in different currencies and bear different rates of interest).
2 The reporting party has the right to set off the amount it owes against the amount owed to it by the other party.
3 The reporting party intends to set off the two amounts.
4 The right of setoff is legally enforceable.(ASC 210‐20‐45‐1)
Practice Pointer: If an entity has the ability to set off, but does not intend to use it, presenting the effect in the balance sheet is not representationally faithful. Criteria 3 requires judgment to discern the intent of the reporting entity. History may be an indicator of the entity's intent. (ASC 210‐20‐45‐4 and 45‐5)
When maturities differ, only the party with the nearest maturity can offset, because the party with the later maturity must settle in the manner determined by the party with the earlier maturity. (ASC 210‐10‐45‐3)
Entitles must apply their choices to offset consistently. Net receivables arising from application of ASC 210‐20 cannot be offset against net payables. (ASC 210‐20‐45‐12)
Taxes Payable The offsetting of cash or other assets against a tax liability or other amounts due to governmental bodies is acceptable only under limited circumstances. (ASC 210‐10‐45‐6) When it is clear that a purchase of securities is in substance an advance payment of taxes payable in the near future and the securities are acceptable for the payment of taxes, amounts may be offset. Primarily this occurs as an accommodation to governmental bodies that issue tax anticipation notes in order to accelerate the receipt of cash from future taxes. (ASC 210‐10‐45‐7)
Bankruptcy In particular cases, state laws or bankruptcy laws may impose restrictions or prohibitions against the right of setoff. (ASC 210‐10‐45‐8)
Repurchase agreements and reverse repurchase agreements ASC 210‐20‐45‐11 permits the offset of amounts recognized as payables in repurchase agreements against amounts recognized as receivables in reverse repurchase agreements with the same counterparty. If certain conditions are met, an entity may, but is not required to, offset the amounts recognized. The additional conditions for offsetting repurchase agreements and reverse repurchase agreements are:
1 The agreements must have the same explicit settlement date.
2 The agreements must be executed in accordance with a master netting agreement.
3 The securities underlying the agreements exist in “book entry” form and can be transferred only by means of entries in the records of the transfer system operator or the security custodian
4 The agreements will be settled on a securities transfer system that transfers ownership of “book entry” securities, and banking arrangements are in place so that the entity must only keep cash on deposit sufficient to cover the net payable.
5 Cash settlements for securities transferred are made under established bank arrangements that provide that an entity to have cash on deposit for net amounts due at close of business. The entity uses the same account for cash inflows and outflows related to the settlement. (Also see ASC 210‐20‐45‐14 through 17 for additional details.)
These conditions do not apply to amounts recognized for other types of repurchase and reverse repurchase agreements executed under a master netting arrangement. This does not mean that those amounts could not otherwise meet the conditions for a right of setoff. (ASC 210‐20‐45‐13)
Disclosures The disclosures required by ASC 210‐20 apply to:
Recognized derivative instruments accounted for in accordance with ASC 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset in accordance with either ASC 210‐20‐45 or ASC 815‐10‐45
Recognized derivative instruments accounted for in accordance with Topic 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210‐20‐45 or ASC 815‐10‐45.(ASC 210‐20‐50‐1)
The
