Financial Instruments: Disclosures
International Financial Reporting Standard 7

 

In April 2001 the International Accounting Standards Board (IASB) adopted IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions, which had originally been issued by the International Accounting Standards Committee in August 1990 In August 2005 the IASB issued IFRS 7 Financial Instruments, which replaced IAS 30 and carried forward the disclosure requirements in IAS 32 Financial Instruments: Disclosure and Presentation. IAS 32 was subsequently renamed as IAS 32 Financial Instruments: Presentation. IAS 1 Presentation of Financial Statements (as revised in 2007) amended the terminology used throughout IFRSs, including IFRS 7. In March 2009 the IASB enhanced the disclosures about fair value and liquidity risks in IFRS 7 The IASB also amended IFRS 7 to reflect that a new financial instruments standard wa issued—IFRS 9 Financial Instruments, issued in November 2009, related to the classification of financial assets and the updated IFRS 9 Financial Instruments, issued in October 2010, related to the classification of financial liabilities IFRS 7 was also amended in October 2010 to require entities to supplement disclosures for all transferred financial assets that are not derecognised where there has been some continuing involvement in a transferred asset. The IASB amended IFRS 7 in December 2011 to improve disclosures in netting arrangements associated with financial assets and financial liabilities Other IFRSs have made minor consequential amendments to IFRS 7. They include Limite   Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (Amendments to IFRS 1) (issued January 2010), Improvements to IFRSs (issued May 2010), IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011), Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (issued June 2011), Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7) (issued December 2011), Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (issued October 2012) and IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued November 2013)

CONTENTS

IN1

INTRODUCTION

 

1

3

6

7

8

8

9

11A

12B

13A

14

16

17

18

20

20

21

21

21A

25

31

33

34

36

39

40

42A

42D

42E

42H

43

45

 

 

 

 

 

INTERNATIONAL FINANCIAL REPORTING STANDARD 7

FINANCIAL INSTRUMENTS: DISCLOSURES

OBJECTIVE

SCOPE

CLASSES OF FINANCIAL INSTRUMENTS AND LEVEL OF DISCLOSURE

SIGNIFICANCE OF FINANCIAL INSTRUMENTS FOR FINANCIAL POSITION

AND PERFORMANCE

Statement of financial position

Categories of financial assets and financial liabilities

Financial assets or financial liabilities at fair value through profit or loss

Financial assets measured at fair value through other comprehensive income

Reclassification

Offsetting financial assets and financial liabilities

Collateral

Allowance account for credit losses

Compound financial instruments with multiple embedded derivatives

Defaults and breaches

Statement of comprehensive income

Items of income, expense, gains or losses

Other disclosures

Accounting policies Hedge accounting

Fair value

NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS

Qualitative disclosures

Quantitative disclosures

Credit risk

Liquidity risk

Market risk

TRANSFERS OF FINANCIAL ASSETS

Transferred financial assets that are not derecognised in their entirety

Transferred financial assets that are derecognised in their entirety

Supplementary information

EFFECTIVE DATE AND TRANSITION

WITHDRAWAL OF IAS 30

APPENDICES

A Defined terms

B Application guidance

C Amendments to other IFRSs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOR THE ACCOMPANYING DOCUMENTS LISTED BELOW, SEE PART B OF THIS  EDITION

APPROVAL BY THE BOARD OF IFRS 7 ISSUED IN AUGUST 2005

APPROVAL BY THE BOARD OF AMENDMENTS TO IFRS 7

Improving Disclosures about Financial Instruments issued in March 2009

Disclosures—Transfers of Financial Assets issued in October 2010

Mandatory Effective Date of IFRS 9 and Transition Disclosures (Amendments

to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7) issued in December 2011

Disclosures—Offsetting Financial Assets and Financial Liabilities

(Amendments to IFRS 7) issued in December 2011

IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9,

IFRS 7 and IAS 39) issued in November 2013

BASIS FOR CONCLUSIONS

APPENDIX

Amendments to Basis for Conclusions on other IFRSs

IMPLEMENTATION GUIDANCE

APPENDIX

Amendments to guidance on other IFRSs

International Financial Reporting Standard 7 Financial Instruments: Disclosures (IFRS 7) is set out in paragraphs 1-45 and Appendices A-C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. Definitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 7 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance

Introduction

Reasons for issuing the IFRS

IN1 In recent years, the techniques used by entities for measuring and managing exposure to risks arising from financial instruments have evolved and new risk management concepts and approaches have gained acceptance. In addition, many public and private sector initiatives have proposed improvements to the disclosure framework for risks arising from financial instruments

IN2 The International Accounting Standards Board believes that users of financial statements need information about an entity's exposure to risks and how those risks are managed. Such information can influence a user's assessment of the financial position and financial performance of an entity or of the amount, timing and uncertainty of its future cash flows. Greater transparency regarding those risks allows users to make more informed judgements about risk and return

IN3 Consequently, the Board concluded that there was a need to revise and enhance the disclosures in IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions and IAS 32 Financial Instruments: Disclosure and Presentation. As part of this revision, the Board removed duplicative disclosures and simplified the disclosures about concentrations of risk, credit risk, liquidity risk and market risk in IAS 32

IN4 IFRS 7 applies to all risks arising from all financial instruments, except those instruments listed in paragraph 3. The IFRS applies to all entities, including entities that have few financial instruments (eg a manufacturer whose only financial instruments are accounts receivable and accounts payable) and those that have many financial instruments (eg a financial institution most of whose assets and liabilities are financial instruments). However, the extent of disclosure required depends on the extent of the entity's use of financial instruments and of its exposure to risk

IN5 The IFRS requires disclosure of

the significance of financial instruments for an entity's financial position and performance. These disclosures incorporate many of the requirements previously in IAS 32 qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The qualitative disclosures describe management's objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity's key management personnel. Together, these disclosures provide an overview of the entity's use of financial instruments and the exposures to risks they create

IN5A Amendments to the IFRS, issued in March 2009, require enhanced disclosures about fair value measurementsand liquidity risk. These have been made to address application issues and provide useful information to users

IN5B Disclosures—Transfers of Financial Assets (Amendments to IFRS 7), issued in October 2010, amended the required disclosures to help users of financial statements evaluate the risk exposures relating to transfers of financial assets and the effect of those risks on an entity's financial position

IN5C In May 2011 the Board relocated the disclosures about fair value measurements to IFRS 13 Fair Value Measurement

IN6 The IFRS includes in Appendix B mandatory application guidance that explains how to apply the requirements in the IFRS. The IFRS is accompanied by non-mandatory Implementation Guidance that describes how an entity might provide the disclosures required by the IFRS

IN7 The IFRS supersedes IAS 30 and the disclosure requirements of IAS 32. The presentation requirements of IAS 32 remain unchanged

IN8 The IFRS is effective for annual periods beginning on or after 1 January 2007. Earlier application is encouraged

IN9 Disclosures—Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7), issued in December 2011, amended the required disclosures to include information that will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity's recognised financial assets and recognised financial liabilities, on the entity's financial position

International Financial Reporting Standard 7  Financial Instruments: Disclosures

Objective

 

The objective of this IFRS is to require entities to provide disclosures in their financial statements that enable users to evaluate the significance of financial instruments for the entity's financial position and performance; and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks

Scope

This IFRS shall be applied by all entities to all types of financial instruments except those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IFRS 10, IAS 27 or IAS 28 require or permit an entity to account for an interest in a subsidiary, associate or joint venture using IFRS 9; in those cases, entities shall apply the requirements of this IFRS. Entities shall also apply this IFRS to all derivatives linked to interests in subsidiaries, associates or joint ventures unless the derivative meets the definition of an equity instrument in IAS 32 employers' rights and obligations arising from employee benefit plans to which IAS 19 Employee Benefits applies insurance contracts as defined in IFRS 4 Insurance Contracts. However, this IFRS applies to derivatives that are embedded in insurance contracts if IFRS 9 requires the entity to account for them separately. Moreover, an issuer shall apply this IFRS to financial guarantee contracts if the issuer applies IFRS 9 in recognising and measuring the contracts, but shall apply IFRS 4 if the issuer elects, in accordance with paragraph 4(d) of IFRS 4, to apply IFRS 4 in recognising and measuring them financial instruments, contracts and obligations under share-based payment transactions to which IFRS 2 Share-based Payment applies, except that this IFRS applies to contracts within the scope of IFRS 9 The principles in this IFRS complement the principles for recognising, measuring and presenting financial assets and financial liabilities in IAS 32 Financial Instruments: Presentation and IFRS 9 Financial Instruments instruments that are required to be classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D of IAS 32 This IFRS applies to recognised and unrecognised financial instruments Recognised financial instruments include financial assets and financial liabilities that are within the scope of IFRS 9. Unrecognised financial instruments include some financial instruments that, although outside the scope of IFRS 9, are within the scope of this IFRS (such as some loan commitments) This IFRS applies to contracts to buy or sell a non-financial item that are within the scope of IFRS 9

Classes of financial instruments and level of disclosure

When this IFRS requires disclosures by class of financial instrument, an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. An entity shall provide sufficient information to permit reconciliation to the line items presented in the statement of financial position

Significance of financial instruments for financial position and performance

An entity shall disclose information that enables users of its financial  statements to evaluate the significance of financial instruments for its financial position and performance

Statement of financial position  Categories of financial assets and financial liabilities

 

The carrying amounts of each of the following categories, as specified in IFRS 9 shall be disclosed either in the statement of financial position or in the notes financial assets measured at fair value through profit or loss, showing separately (i) those designated as such upon initial recognition or subsequently in accordance with paragraph 6.7.1 of IFRS 9 and (ii) those mandatorily measured at fair value in accordance with IFRS 9 financial liabilities at fair value through profit or loss, showing

separately (i) those designated as such upon initial recognition or subsequently in accordance with paragraph 6.7.1 of IFRS 9 and (ii) those that meet the definition of held for trading in IFRS 9 financial assets measured at amortised cost financial liabilities measured at amortised cost financial assets measured at fair value through other comprehensive income

Financial assets or financial liabilities at fair value through profit  or loss

If the entity has designated as measured at fair value a financial asset (or group of financial assets) that would otherwise be measured at amortised cost, it shall disclose the maximum exposure to credit risk (see paragraph 36(a)) of the financial asset (or group of financial assets) at the end of the reporting period the amount by which any related credit derivatives or similar instruments mitigate that maximum exposure to credit risk the amount of change, during the period and cumulatively, in the fair value of the financial asset (or group of financial assets) that is attributable to changes in the credit risk of the financial asset determined either as the amount of change in its fair value that is not attributable to changes in market conditions that give rise to market risk; or using an alternative method the entity believes more faithfully represents the amount of change in its fair value that is attributable to changes in the credit risk of the asset Changes in market conditions that give rise to market risk include changes in an observed (benchmark) interest rate, commodity price, foreign exchange rate or index of prices or rates the amount of the change in the fair value of any related credit derivatives or similar instruments that has occurred during the period and cumulatively since the financial asset was designated If the entity has designated a financial liability as at fair value through profit or loss in accordance with paragraph 4.2.2 of IFRS 9 and is required to present the effects of changes in that liability's credit risk in other comprehensive income see paragraph 5.7.7 of IFRS 9), it shall disclose the amount of change, cumulatively, in the fair value of the financial liability that is attributable to changes in the credit risk of that liability (see paragraphs B5.7.13-B5.7.20 of IFRS 9 for guidance on determining the effects of changes in a liability's credit risk) the difference between the financial liability's carrying amount and th amount the entity would be contractually required to pay at maturity to the holder of the obligation any transfers of the cumulative gain or loss within equity during the period including the reason for such transfers if a liability is derecognised during the period, the amount (if any presented in other comprehensive income that was realised at derecognition If an entity has designated a financial liability as at fair value through profit or loss in accordance with paragraph 4.2.2 of IFRS 9 and is required to present all

changes in the fair value of that liability (including the effects of changes in the credit risk of the liability) in profit or loss (see paragraphs 5.7.7 and 5.7.8 of IFRS it shall disclose the amount of change, during the period and cumulatively, in the fair value of the financial liability that is attributable to changes in the credit risk of that liability (see paragraphs B5.7.13-B5.7.20 of IFRS 9 for guidance on determining the effects of changes in a liability's credit risk); and the difference between the financial liability's carrying amount and the amount the entity would be contractually required to pay at maturity to the holder of the obligation The entity shall also disclose a detailed description of the methods used to comply with the requirements in paragraphs 9(c), 10(a) and 10A(a) and paragraph 5.7.7(a) of IFRS 9, including an explanation of why the method is appropriate. if the entity believes that the disclosure it has given, either in the statement of financial position or in the notes, to comply with the requirements in paragraph 9(c), 10(a) or 10A(a) or paragraph 5.7.7(a) of IFRS 9 does not faithfully represent the change in the fair value of the financial asset or financial liability attributable to changes in its credit risk, the reasons for reaching this conclusion and the factors it believes are relevant. a detailed description of the methodology or methodologies used to determine whether presenting the effects of changes in a liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss (see paragraphs 5.7.7 and 5.7.8 of IFRS 9). If an entity is required to present the effects of changes in a liability's credit risk in profit or loss (see paragraph 5.7.8 of IFRS 9), the disclosure must include a detailed description of the economic relationship described in paragraph B5.7.6 of IFRS 9

 

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