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Presenting the balance sheet – to net or not to net · PwC's accounting podcast

0:00
SPEAKER_00: Thought leadership from PwC's National Office.
0:06
SPEAKER_03: Welcome to PWC's Accounting Podcast.
0:09
SPEAKER_03: I'm Heather Horn.
0:11
SPEAKER_03: It's February, and if you're an accountant listening to this podcast, you know that for most accountants, this means reporting and earnings season.
0:19
SPEAKER_03: And to all of you without a calendar year end, you can still think about some of these topics.
0:25
SPEAKER_03: So for this month, we've really focused in on financial statement presentation because that is actually not only the season, but our most popular guide.
0:34
SPEAKER_03: And so we've picked some topics from this guide to cover and to highlight during this time.
0:40
SPEAKER_02: We're trying to note a bunch of areas where the details matter.
0:43
SPEAKER_02: And so this is an area where you do need to understand those details.
0:47
SPEAKER_02: We talked several times about giving legal counsel involved to help make those determinations that are important.
0:56
SPEAKER_02: This area of balance sheet offsetting is an area that we've seen some interest from the SEC staff, both in the reviews and in comment letters.
1:04
SPEAKER_02: So given both its significance to financial statement users and regulators, I think this is an area where it's worth the time to work through the guidance, figure out what's in your contracts, and make sure you're reaching the uh consistent conclusions.
1:27
SPEAKER_03: That was Brett Joley, Deputy Chief Accountant in PWC's national office, who leads our financial instruments team, and he's joining us for a refresher on a topic that's fundamental to financial reporting and one that can get very complicated very quickly.
1:41
SPEAKER_03: That's balance sheet offsetting.
1:44
SPEAKER_03: So whether, as I said, you're working through the year end right now or looking ahead, this is definitely a topic you don't want to miss.
1:50
SPEAKER_03: Brett has many years of practical experience dealing with this topic, so I can't wait to hear his insight.
1:55
SPEAKER_03: So, Brett, thanks for joining me today.
1:57
SPEAKER_02: Thanks for having me, Heather.
1:58
SPEAKER_03: All right.
1:59
SPEAKER_03: So, Brett, before we got into the specifics, I think it's helpful, as we did for our other episode, to talk about why balance sheet offsetting, also known as net presentation, netting, there's lots of sort of related terms, why this is something that's important for our listeners.
2:15
SPEAKER_03: And so I think just setting some context will help kind of lead our conversation.
2:20
SPEAKER_02: Yeah, I mean, US GAAP generally starts with the premise that assets and liabilities are shown gross on the balance sheet, right?
2:27
SPEAKER_02: But there are some situations we find where offsetting is permitted to provide a more meaningful presentation of a company's financial position.
2:36
SPEAKER_02: So this is an area that's you know, netting or offsetting, um, depending on what term you want to use, um, it permits certain assets and liabilities to be presented on a as a net balance on the face of the balance sheet.
2:48
SPEAKER_02: And I think um this is important an area to think about because in some cases um financial statement users find that net presentation provides a more accurate representation of an entity's financial position.
3:02
SPEAKER_02: If you're a user and you're trying to think about the assets of the entity and all the claims against it, putting a gross asset on the books when you know it's going to be settled net against some specific liability could actually be less useful to users because they may think that that asset could be used for other purposes.
3:22
SPEAKER_02: And we find this also important for a few reasons, depending on the industry you're in.
3:28
SPEAKER_02: Um start with um regulated entities.
3:30
SPEAKER_02: Sometimes there are capital or other ratios or requirements that are based on asset and liability balances.
3:37
SPEAKER_02: So having those matched up is important.
3:40
SPEAKER_02: Um netting can also impact balances that feed into leverage ratios and other credit and other metrics that are sometimes used by credit rating agencies.
3:50
SPEAKER_02: Uh and overall, um, I think it's just important for financial statement users, whether they are investors or creditors who are using the balance sheet to try to assess risk and conduct financial analysis, to know that the balances kind of accurately convey the substance of the arrangements or the transactions that a company has.
4:09
SPEAKER_02: So all of that may be a long-winded way of saying, I think a lot of stakeholders care about balance sheet offsetting because it just enables them to make more informed decisions when they're evaluating what an entity's financial position is.
4:21
SPEAKER_03: Well, and I think it's a really important point to sort of level set, as you said, because you know, I think superficially it's like, oh, well, gross is always better.
4:29
SPEAKER_03: It gives you more information.
4:31
SPEAKER_03: You know, you have more transparency or otherwise.
4:33
SPEAKER_03: But I think the point you're making is actually in some cases, net is actually a more meaningful presentation.
4:39
SPEAKER_03: And so you can't automatically assume gross or net is quote unquote better.
4:44
SPEAKER_03: You have to really look at the transaction and say what is meaningful doesn't meet the rules, which we'll get into.
4:50
SPEAKER_03: But I think it's important to go in with a mindset that you don't have a predisposition towards net or gross, but that you're looking at the actual situation.
4:59
SPEAKER_02: I I think that's fair.
5:00
SPEAKER_02: And I think as we go through, you'll find that the conditions you have to meet in order to net are fairly restrictive.
5:06
SPEAKER_02: Um, and so they really do narrow down some specific situations where that net presentation seems like it could be useful or meaningful to someone.
5:15
SPEAKER_03: Yeah.
5:15
SPEAKER_03: So when I was still uh actively auditing and accounting, uh Fin 39 was the reference we would use to say, does it meet the Fin 39 requirements?
5:24
SPEAKER_03: I know that has now evolved into the codification, but maybe going through those requirements will be helpful for us to start the conversation.
5:32
SPEAKER_02: Yep.
5:33
SPEAKER_02: Um and maybe when we start the conversation, I also want to say let's not confuse like balance sheet offsetting and netting that we're talking about today with contra accounts, like allowance for loan losses or accumulated depreciation balances.
5:48
SPEAKER_02: Those those part of related assets, um, you know, and they aren't assets in their own right nor liabilities.
5:54
SPEAKER_02: So we're not talking about those situations.
5:57
SPEAKER_02: We're also talking about presentation.
5:59
SPEAKER_02: We're not talking about actual derecognition of an asset or derecognition of a liability.
6:04
SPEAKER_02: There are different standards for that.
6:07
SPEAKER_02: Um, this area, you mentioned FIN39 near dear to my heart, it's ASC 210-20.
6:13
SPEAKER_02: Uh if this doesn't roll off the tongue.
6:18
SPEAKER_02: Um, but it it permits um presentation of asset and liability balances with a single counterparty as a net balance if there's a right of set-off that that exists.
6:29
SPEAKER_02: Unless that right of set off exists, you know, there's a general principle where offsetting would be not appropriate.
6:35
SPEAKER_02: Of course, any good accounting principle comes with exceptions, and people will say, what about accounting for pension assets and liabilities?
6:43
SPEAKER_02: Those get net.
6:44
SPEAKER_02: Um, that's true.
6:45
SPEAKER_02: And I'm also later going to talk about um a couple of important exceptions that are specific to derivatives and repurchase agreement.
6:53
SPEAKER_02: I'll save those for the end uh for listeners that can hang on that long with us.
6:57
SPEAKER_02: Um, but again, those are exceptions to this general principle that I want to lay out.
7:01
SPEAKER_02: So let's start with this general framework.
7:04
SPEAKER_02: Think of four conditions to determine whether you've got this right of set off uh that exists.
7:09
SPEAKER_02: And going through um, I'm gonna read them out here because I think it's important to think through your checking all the boxes.
7:16
SPEAKER_02: Um, first, you've got each of two parties that owes the other determinable amounts.
7:22
SPEAKER_02: Second, the reporting entity has the right to set off the amount owed with the amount owed by the other party.
7:29
SPEAKER_02: Third, the reporting entity intends to set off.
7:33
SPEAKER_02: And fourth, the right of set off is enforceable at law.
7:37
SPEAKER_02: I know you hate it on podcasts when we recite um.
7:41
SPEAKER_03: No, no, in this case is very important.
7:43
SPEAKER_03: I agree.
7:44
SPEAKER_02: There's just four, and three of them are pretty objectively determinable, although we're gonna have to go through them.
7:49
SPEAKER_02: Think of that third uh criteria the reporting entity intends to set off.
7:55
SPEAKER_02: That one would may require a little more judgment, and as we can talk about, it's often a tricky one to practice.
8:01
SPEAKER_03: All right, yes, definitely.
8:02
SPEAKER_03: And we will talk some more about that, but maybe beforehand, I think it is important to talk about the fact that this is actually a policy election.
8:10
SPEAKER_02: That's right.
8:11
SPEAKER_02: Um if you meet these conditions, you're permitted, but not required to offset.
8:15
SPEAKER_02: And but you we think you do need to apply that policy election consistently.
8:20
SPEAKER_03: And so I I think Brett, what's important is I made the comment earlier to think about it's not always better to be gross, it's not always better to be net.
8:28
SPEAKER_03: And you do have to meet this criteria.
8:30
SPEAKER_03: And so I think in even setting your accounting policies, you should be thinking again about the users of your financial statements.
8:37
SPEAKER_03: But once you set that policy, you have to stick with it.
8:40
SPEAKER_03: That's right.
8:41
SPEAKER_03: All right.
8:41
SPEAKER_03: So, Brett, I'm looking forward to the derivative conversation.
8:45
SPEAKER_03: But before we get to that, if I'm a company and I'm looking at my balance sheet and I'm thinking about offset, then our first criteria is just understanding whether there are two parties and whether they owe each other determinable amounts.
8:58
SPEAKER_03: So basically, as a company, do I have an asset and liability with the same counterparty?
9:05
SPEAKER_02: Exactly.
9:05
SPEAKER_02: And and I think it's as straightforward as that.
9:08
SPEAKER_02: But there are a lot of situations where there are three or more parties involved.
9:13
SPEAKER_02: Like think of a simple example that we see all the time in practice where an entity has um exposure to certain liabilities and it wants to limit that exposure, so it buys insurance that's gonna reimburse it if those liabilities um you know come to fruition.
9:28
SPEAKER_02: Um when you buy insurance from a third party insurer, you're still the legally the primary obligor for that original liability, like the legal claims that are that are coming up, for example.
9:40
SPEAKER_02: So if that liability does arise and the liability is an insured loss, your insurance company is going to cover it, you have still have a liability on your balance sheet as well as an insurance recovery receivable.
9:52
SPEAKER_02: But it's not appropriate to offset those, even though economically they're linked, because you've got more than two parties involved.
9:59
SPEAKER_02: You owe, in my case, your um maybe it's a legal claim, and you've got a receivable from a third-party insurance company.
10:06
SPEAKER_02: You've got three parties involved, um, you've you violated the the first step of having only two counterparties.
10:12
SPEAKER_02: And so it's important to make sure you understand the contractual terms of the arrangement to ensure that there are just two counterparties and that each party is acting in its capacity as both debtor and creditor, that you're, you know, you're a principal to that contract, that you are one of those two parties, not just acting as an agent.
10:30
SPEAKER_02: Um, so I think it's important to understand the details of your counterparties as well.
10:34
SPEAKER_02: If there's different legal entities involved, then I think the analysis can also get a lot more complicated.
10:40
SPEAKER_03: All right, that's helpful.
10:41
SPEAKER_03: So basically, start off, I have to make sure I have a counterparty and that we owe each other a determinable amount.
10:47
SPEAKER_03: So that kind of gives me the first box.
10:49
SPEAKER_03: But then I think the next box is where we start to get a bit more complicated, and that's thinking about the right to set off.
10:57
SPEAKER_02: Right.
10:57
SPEAKER_02: And and let's think of the the second and fourth together because I I think they go hand in hand.
11:03
SPEAKER_02: And also this is where you need to bring some legal counsel friends involved.
11:07
SPEAKER_02: Um, because you have to have both the right to set off and that that right to set off is enforceable at law.
11:14
SPEAKER_02: So there may be situations where you don't have the right to set off um the amounts owed, even if you want to contractually.
11:21
SPEAKER_02: You just don't have the right to settle net uh with your counterparty.
11:25
SPEAKER_02: Or you could have situations where on paper you have the right to set off, but for whatever reason in that jurisdiction, uh, there's uh substantial questions about whether that provision would be enforceable and would withstand scrutiny.
11:39
SPEAKER_02: So this is where I think it makes sense to get legal counsel involved in those assessments because ultimately what you have the right to do is a is a legal determination.
11:48
SPEAKER_02: I think especially when you this question about whether something's enforceable at law, it's often easier just to read the contract and think you it it states a right.
11:57
SPEAKER_02: But um often you'll need the opinion from counsel to to help go through the case law and experience uh and whether that can be would be upheld.
12:06
SPEAKER_02: You know, whether it's in bankruptcy, insolvency, or default of the of the counterparty, there's a lot of complex things to think about there.
12:13
SPEAKER_03: Well, and I think what's interesting to me, at least here, Brett, is that we made the point earlier, this is a policy election.
12:20
SPEAKER_03: And so someone sometimes may say, well, oh, this is like a lot of work to figure out all this this legal criteria.
12:26
SPEAKER_03: I'm just going to present it gross.
12:28
SPEAKER_03: However, having audited a company that was going through a bankruptcy and seeing the claims of parties dismissed while they still had to pay this entity, I think really making sure you understand those obligations, your rights and obligations goes way beyond an accounting question.
12:47
SPEAKER_03: And it is just important from a company perspective to make sure you have that understanding.
12:51
SPEAKER_03: So this is a case where I would say it's not just like an accounting exercise, but it is just important more so from a company perspective.
13:00
SPEAKER_02: I think that's right.
13:01
SPEAKER_02: I I think another twist you can see is sometimes the right to offset is bilateral.
13:05
SPEAKER_02: Both parties have it.
13:07
SPEAKER_02: But in some contracts, it only one side has that ability.
13:11
SPEAKER_02: And so in that case, you need if you're gonna net, you need to make sure you're the one with that right to offset because the guidance is very focused.
13:18
SPEAKER_02: I try to emphasize it's on the reporting entities' rights.
13:22
SPEAKER_03: Right.
13:22
SPEAKER_03: And I think again, it's hopefully clear.
13:24
SPEAKER_03: But the point here is that if your counterparty goes into bankruptcy and you don't have the right, then you may still have to pay them and they don't have to pay you.
13:33
SPEAKER_03: That's right.
13:33
SPEAKER_03: And you don't want to be in that situation.
13:36
SPEAKER_03: All right.
13:37
SPEAKER_03: So now I think you mentioned before this is from a accounting perspective, perhaps a more complicated one.
13:44
SPEAKER_03: I think when we just talked about is legally the more complicated, but really this question of intent to set off.
13:50
SPEAKER_03: And, you know, this does involve judgment.
13:53
SPEAKER_03: So what are some of the things we think about there?
13:55
SPEAKER_02: Yeah, I think it's important to focus on this one.
13:57
SPEAKER_02: We've been talking a little bit about bankruptcy.
14:00
SPEAKER_02: And so some people, when they're thinking through this, don't focus on this intent and they say, well, I've got the right to do this.
14:07
SPEAKER_02: In bankruptcy, this is what's going to happen.
14:09
SPEAKER_02: But this intent is what are you actually going to do, not just in bankruptcy, but in practice?
14:14
SPEAKER_02: And so, you know, these other criteria are talking about the ability to set off, but the guidance is specific that you need to have the intent to do that as well.
14:23
SPEAKER_02: And so you've got judgment here because you need to be looking at the future and assess whether that's truly your intent.
14:30
SPEAKER_02: Um, you have to think about whether you have the the actual um kind of procedural or mechanical ability to settle in in one payment.
14:40
SPEAKER_02: Or in practice, are you just going to settle gross, not through a single wire transfer, for example?
14:46
SPEAKER_02: Um I think sometimes historical precedent is a good indicator when evaluating intent.
14:52
SPEAKER_02: If you've had similar arrangements in the past and you have a practice of settling these obligations on a net basis and using your right to set off, that's obviously a good starting point.
15:03
SPEAKER_02: I think there are some complications here that we see in practice too, when say amounts are in different currencies or when you have different contractual maturity dates, uh, for example, and you need to think through how you can execute on your intent to net settle in those more complicated fact patterns.
15:21
SPEAKER_03: And Brad, I guess to be clear here, when we're talking about intent to net settle, I think you said this.
15:27
SPEAKER_03: We're not talking about in a bankruptcy scenario.
15:29
SPEAKER_03: We're just saying from your normal course of business, is this uh asset or are this asset and liability going to be net settled or will you be making gross payments?
15:40
SPEAKER_02: Right.
15:40
SPEAKER_02: Quite simply, you and I may have business arrangements where I owe you$150 and you owe me$100.
15:46
SPEAKER_02: Do we have an arrangement and I'm just gonna say, Heather, I'm just gonna cut you the check for$50 and we're done.
15:53
SPEAKER_02: Not exchange gross cash flows because of whatever reason that may be more convenient in some cases.
15:59
SPEAKER_02: Right.
15:59
SPEAKER_03: Right.
16:00
SPEAKER_03: Or to your point, if it's different currency or you owe me today and I don't owe you for five years, you know, that that type of scenario.
16:08
SPEAKER_03: So all right, that's very helpful.
16:09
SPEAKER_03: So we mentioned up front that there are actually exceptions to these criteria when we're talking about things like derivatives and repurchase arrangements.
16:18
SPEAKER_03: So I think it's important to cover those because actually you do come out to a different place.
16:23
SPEAKER_02: I think that's right.
16:24
SPEAKER_02: Um, I think the right to set off for derivatives and reverse repurchases and repurchase agreements are subject to different offsetting arrangements.
16:32
SPEAKER_02: And we're gonna get a little complicated here.
16:34
SPEAKER_02: So I'll start out with a pitch to look to chapters 19 and 22 of our financial statement presentation guide for some details.
16:42
SPEAKER_02: But trying to keep it relatively simple, let's start with derivatives.
16:46
SPEAKER_02: The accounting requirements for offsetting that I talked about still apply, except that third item we've just been talking about.
16:52
SPEAKER_02: Um, you don't have to have the intent to offset.
16:55
SPEAKER_02: Um, so before we get into that in a little more detail, I think it's important for derivatives to understand what your receivable and payable is in the first place.
17:03
SPEAKER_02: Um, because many derivative arrangements require counterparties to post margin uh to eliminate credit risk of derivative receivable or payable.
17:11
SPEAKER_02: And that margin requirement will go up or down based on the fair value on that date of the receivable or payable.
17:19
SPEAKER_02: In some cases, that variation margin paid based on the fair value of the derivative or receivable actually constitutes legal settlement of the derivative payable or receivable.
17:29
SPEAKER_02: Or in some cases, it's just collateral posted.
17:32
SPEAKER_02: And the accounting rules are going to be different.
17:34
SPEAKER_02: Obviously, if it's legal settlement, I don't have a netting issue at all because I am that that asset has gone away.
17:42
SPEAKER_02: Um so you need to make a legal determination, understand your contracts, understand the environment, understand your counterparty to know whether that variation margin posted is settlement or if it just acts as collateral.
17:54
SPEAKER_02: Uh once you've made that determination, then you can consider offsetting.
17:58
SPEAKER_02: And again, I've got the same rules, two counterparties, enforceable legal ability to net.
18:05
SPEAKER_02: But as I mentioned, you don't have to have the intent to offset.
18:08
SPEAKER_02: The derivative accounting guidance provides this special exception.
18:12
SPEAKER_02: It's applicable to derivative payables and receivables that you can have under different contracts with a single counterparty, as well as the fair value amounts of collateral balances that you've received or posted.
18:24
SPEAKER_02: And all of those are typically captured in a legal agreement that we call a master netting arrangement, which talks about permitting this uh ability to uh net settle those balances.
18:37
SPEAKER_02: Like in other situations, this is an accounting policy election.
18:40
SPEAKER_02: Uh we find it fairly typical for derivative dealers and financial institutions to make that accounting election.
18:47
SPEAKER_02: When you look at the corporate side, a lot of entities that don't have a lot of derivative activity, a lot of them choose to just skip this election entirely and avoid this complexity.
18:57
SPEAKER_03: Yeah, and I think, Brett, if you are making the election to present everything net, it's very important to make sure that all of your transactions with that counterparty are under that master netting arrangement because there can be cases where you have a lot under the arrangement, but for whatever reason you have some other ones.
19:16
SPEAKER_03: And so you just need to be careful that you are segregating and accounting for them properly there.
19:21
SPEAKER_02: I think you're right.
19:22
SPEAKER_02: And as you'd expect, there's extensive disclosure requirements for derivative netting intended to help financial statement users understand what's going on, understand gross balances and how they net down.
19:35
SPEAKER_02: Interestingly to note, uh, even if derivatives aren't netted down, um, you should still determine whether they're subject to master net agreements.
19:43
SPEAKER_02: This is one area where even if you present them gross, if they're subject to master net agreements, you still have a disclosure requirements.
19:50
SPEAKER_02: So um so users understand that.
19:52
SPEAKER_03: Yep, very important.
19:54
SPEAKER_03: All right.
19:54
SPEAKER_03: So we also mentioned earlier securities financing arrangements.
19:57
SPEAKER_03: And so then those also have different criteria.
20:01
SPEAKER_02: They do.
20:01
SPEAKER_02: And we'll take a deep breath here.
20:03
SPEAKER_02: Um, generally the the requirements for offsetting securities borrowed and loaned on the balance sheet are governed by the same four criteria we discussed before.
20:12
SPEAKER_02: And without shortcutting that analysis, the contractual terms and settlement conventions in those markets generally preclude um the transactions from meeting those uh four conditions.
20:24
SPEAKER_02: But there's one type of securities financing, reverse uh repurchase transactions and repurchase uh transactions.
20:30
SPEAKER_02: I'm just gonna call them repos.
20:32
SPEAKER_02: Okay, much easier.
20:33
SPEAKER_02: Um there's a whole separate set of six criteria which determine whether those are eligible for offset.
20:40
SPEAKER_02: Um this is a whole exception created around that intent to settle net that we talked about again.
20:46
SPEAKER_02: Because for most repos, the market standard is to not actually settle transactions in one net wire transfer.
20:54
SPEAKER_02: They're often, even if they're maturing in the day, they're often settling on a gross basis throughout the day.
21:00
SPEAKER_02: But because of the way those standard market mechanisms work, they're recognized in the accounting literature as sort of the functional equivalent of net settlement.
21:09
SPEAKER_02: And so this exception was created for repos.
21:12
SPEAKER_03: So wait, but before you go on, I just want to make sure we clarify this.
21:16
SPEAKER_03: So for derivatives, you're using the same four criteria, but you say that one of them you don't have to apply.
21:23
SPEAKER_03: So basically you're using three of the four.
21:25
SPEAKER_03: But now you're saying in the case of repos, we actually have six different criteria.
21:29
SPEAKER_03: I'm guessing you're gonna say they're similar, but they are actually standalone criteria.
21:33
SPEAKER_02: They are.
21:34
SPEAKER_02: They are.
21:34
SPEAKER_02: And this is Fin 41 netting.
21:36
SPEAKER_03: Oh, not Fin 39.
21:37
SPEAKER_02: Not FIN39.
21:38
SPEAKER_02: It was scoped out of FIN39.
21:40
SPEAKER_02: But like you said, the first three criteria are similar to what we just talked about.
21:44
SPEAKER_02: Same counterparty, same settlement date, executed under master netting arrangement.
21:50
SPEAKER_02: The third one is where you get a little more complex and they're a little wonky to to repos.
21:56
SPEAKER_02: Um, you know, these securities under the repo have to exist and book.
22:00
SPEAKER_02: entry form and the the transfer is achieved just by electronic debits and credits within a transfer system.
22:07
SPEAKER_02: The second is you've got a securities transfer system with banking arrangements in place.
22:12
SPEAKER_02: So that if you are settling gross basis throughout the day, you've got overdraft protections, intraday credit, et cetera, so you can make sure that all of those arrangements will ensure that settlement will occur as required.
22:26
SPEAKER_02: And then you've got to go through the same bank clearing bank account at the settlement date.
22:31
SPEAKER_02: All of the those, especially those last three requirements are complex, I'd say for the vast majority of our listeners aren't going to have to do with a lot of repo.
22:41
SPEAKER_02: You know, you're you're in uh you're in a good spot.
22:44
SPEAKER_02: For the companies that have to deal with this, uh, we're not going to get through this on a podcast.
22:49
SPEAKER_02: I'd point to our financial statement presentation guide with more details.
22:53
SPEAKER_02: But the message here is if you're heavily involved in repo markets, you're going to have to make sure to roll up your sleeves and dig in here.
22:59
SPEAKER_03: All right.
22:59
SPEAKER_03: And to your point that I think this won't apply to most of our listeners, normally you use this phrase book entry form.
23:06
SPEAKER_03: Normally I would have asked you to explain but since I think for most of our listeners if this applies they know what that is.
23:11
SPEAKER_03: And if it doesn't apply they're probably happy.
23:14
SPEAKER_03: Let's keep them engaged too.
23:15
SPEAKER_03: Exactly.
23:16
SPEAKER_03: So all right.
23:17
SPEAKER_03: So definitely if you are in this this markup please make sure you look at the Financial Statement Presentation Guide, chapter 22.
23:24
SPEAKER_03: And actually for anyone dealing with offsetting, you want to make sure you check that.
23:27
SPEAKER_03: But Brett, I do think you actually have laid this out in a way that makes it seem like, oh, this is actually pretty straightforward.
23:34
SPEAKER_03: And I know when it comes down into practice it's really not very straightforward.
23:38
SPEAKER_03: And as we've talked about it is very important.
23:41
SPEAKER_03: And so what are sort of the reminders that you would leave our listeners with if they're trying to think through some of this offsetting?
23:48
SPEAKER_02: Yeah I I'd leave it with with maybe two.
23:50
SPEAKER_02: I I've laid out the framework here but we tried to note a bunch of areas where the details matter.
23:56
SPEAKER_02: And so this is an area where you do need to understand those details.
23:59
SPEAKER_02: We talked several times about getting legal counsel involved to help make those determinations that are important.
24:05
SPEAKER_02: The second reminder I'd give for SEC filers, this area of balance sheet offsetting is an area that we've seen some interest from the SEC staff, both in their reviews and in comment letters.
24:17
SPEAKER_02: So given both its significance to financial statement users and regulators, I think this is an area where it it's worth the time to work through the guidance, figure out what's in your contracts and and make sure you're reaching the uh consistent conclusions.
24:32
SPEAKER_03: All right well Brad as always such a pleasure to talk to you and thanks so much for joining me today.
24:36
SPEAKER_03: Thanks Art That's our show for today.
24:40
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24:50
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