CERTYNEX IFRS ACADEMY

Hydre SA has, towards Kappa SA, a receivable and a payable with a legally enforceable right of set-off, and the contract allows net settlement. For three years, however, Hydre has settled its receivables and payables with Kappa separately, on different dates, and its documented liquidity risk management policy provides for gross settlement (case facts). What does Hydre conclude on the criterion of intention to settle net?

The intention criterion is not met: past gross settlement practices and documented risk management contradict an intention to settle on a net basis.

The intention criterion is met, since the contract provides for the possibility of net settlement and that contractual possibility is enough to establish the intention.

The intention criterion is met, since both amounts are owed to the same counterparty and expressed in the same currency.

The intention criterion need not be examined: the review is limited to the legally enforceable right criterion where the contract provides for net settlement, which makes the review of settlement practices unnecessary.