Changes to IFRS 7 require an entity to disclose information about compensation rights and related agreements (e.g. B acquisition registration requirements) for financial instruments under an enforceable debt compensation agreement or similar agreement. A master compensation agreement is an agreement between two parties — known as counterparties — that governs the processing of certain compensations or contracts. Two transactions reward each other if a profit in one transaction results in a loss in the other. In other words, transactions protect each other. A master compensation agreement requires a practice called “net settlement” when one of the counterparties acidizes or terminates late a contract included in the master compensation agreement. As part of the net tally, counterparties add up the net amount owed under all contracts under the master compensation contract. The counterparty that owes money is required to settle its debts by a one-time payment in one currency to the other counterparty. Contracts normally include derivative financial instruments, including futures, options, swaps, convertible bonds and other contracts whose derivative value comes from the value of a related underlying security, as part of a master netting agreement. In addition, reverse pension contracts and securities lending contracts are often included in master netting agreements. Two manufacturers can enter into a compensation master contract if they act as suppliers and customers for each other. Although the US-GAAP clearing model is similar to that of IFRS, it offers a broad exception to the above principle, which allows companies to report derivative assets and derivative liabilities subject to a net control compensation agreement, even if an entity has no current or net interest in paying.
Compensation, also known as netting, is made when companies communicate their rights and obligations to each other as a net amount on their balance sheets. As a general rule, basic compensation agreements are also subject to conditions and therefore do not meet the compensation criteria (IAS 32.50). This project has just been completed. On December 16, 2011, IASB and FASB issued joint disclosure obligations to help investors and other users better assess the impact or potential impact of compensation agreements on a company`s financial position. The new requirements are listed in the financial asset and liability compensation data (changes to IFRS 7). . Meaning of a “currently enforceable right of compensation” The amendments specify that in order to compensate a financial asset and financial liability, a right of compensation must not depend on a future event, but must be exercised by one of the counterparties, both in the normal framework of the transaction and in the event of a default. , bankruptcy or bankruptcy.
