A recent decision by the IFRS Interpretations Committee (IFRIC) could potentially have significant implications for notional cash pooling if cash balances are not expected to be physically settled on a net basis at reporting date.
IFRIC responded to a specific submission in respect of a cash pooling arrangement where the bank and the group have the legally enforceable right to set off account balances, but regular physical transfers of balances into a single netting account are not performed at the reporting date. IFRIC’s decision noted that the group’s bank account balances would move in the normal course of business between reporting date and the next physical settlement date. They concluded that the group did not expect to settle its subsidiaries’ period-end account balances on a net basis and hence this cash pooling structure does not meet the offsetting requirements in IAS 32.
Notional pooling faces a double whammy with Basel III requiring banks to hold additional capital and liquidity. By the time Basel rules are implemented in 2018 we may see some banks withdraw notional pooling altogether whilst others limit their offering to select clients.
Further details can be found in a PwC Technical Alert, and IFRIC’s decision paper.
