IFRS 7: Financial Instruments: Disclosure

(The recognition & measurement and presentation is discussed in earlier post)

IFRS 7: Financial Instruments: Disclosure

Application

• Disclosure if:
• Factors affecting the amount, timing and certainty of cash flows;
• The use of financial instruments and the business purpose they serve
• The associated risks and management’s policies for controlling those risks.

Scope

This standard should be applied in presenting and disclosing information about all types of financial instruments; both recognized and unrecognized, except for financial instruments that are dealt with by other standards, i.e.

• Interests in subsidiaries, associates, and joint ventures accounted for under IAS 27, IAS 28 and IAS 31 respectively;
• Contracts for contingent consideration in a business combination under IFRS 3 (only applies to the acquirer);
• Employer’s rights and obligations under employee benefit plans, to which IAS 19 applies;
• Certain insurance contracts accounted for under IFRS 4; and

Financial instruments, contracts and obligation under share-based payment transactions to which IFRS 2 applies (unless relating to treasury shares).

Disclosure

1. Rules

• The purpose of the disclosure is to:
• Enhance understanding of the significance of financial instruments to an entity’s financial position, performance and cash flows:
• Assist in assessing the factors affecting the amount, timing and certainity of future cash flows associated with those instruments; and
• Provide information to assist users of financial statements in assessing the extent of related risks.
• Financial instruments are grouped into classes that are appropriate to the nature of information disclosed.
• Information sufficient to allow reconciliation to the line items in the balance sheet must be provided.
• The information disclosed should be facilitates users evaluating the significance of financial instruments on an entity’s financial position and performance.

2. Balance Sheet

A. Categories of financial assets and liabilities

• An entity must disclose the carrying amounts analyzed into the following categories:
• Financial assets at fair value through profit and loss, showing separately:
• Those designed on initial recognition, and
• Those classed as held for trading;
• Held to maturity investments;
• Loans and receivables;
• Available-for-sale financial assets;
• Financial liability at fair value through profit and loss, showing separately
• Those designed on initial recognition; and
• Those classes as held for trading;
• Financial liabilities measured at amortized cost.
• Disclosure may be on the face of the balance sheet or within the notes.

B. Financial assets or liabilities at fair vale through profit and loss

• If a loan or receivable is designed at fair vale through profit or loss, an entity must disclose:
• The maximum exposure to credit risk;
• The extent of any related credit derivatives that may mitigate the exposure to credit risk and their change in fair value;
• The amount of change, both in the period and cumulatively, in fair value of the instrument that is attributable to changes in credit risk.
• If a financial liability is designated at fair value through profit or loss, an entity must disclose:
• The amount of change, both in the period and cumulatively, in the fair value of the instrument that is attributable to any change in credit risk;
• The difference between the carrying amount of the instrument and the amount contractually required to settle the instrument at maturity.

C. Derecognition

• If an entity transfers financial assets that do not meet the derecognition criteria, partially or wholly, it must disclose:
• The nature of the assets;
• Any risks and rewards to which the entity is still exposed;
• The carrying amount of the asset and any associated liability that remains wholly or partially recognized; and
• For those assets that are partially derecognized. The carrying amount of the original asset.

D. Collateral

· An entity must disclose:

o The carrying amount of financial assets pledged as collateral for liabilities and

o The terms and conditions of the pledge.

E. Allowances

Impairment of financial assets that are accounted for by recording the loss in separate account, rather than against the asset, will require an entity to disclose a reconciliation of the movement in the account for the period.

F. Defaults and breaches

For all loans payable, an entity discloses:

· Details of any defaults in the period;

· The carrying amount of loans in default; and

· Whether the default was remedied or the terms of the loan renegotiated.