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IFRS amendments to IAS 7

IFRS amendments to IAS 7

IFRS amendments to IAS 7: An entity shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

To the extent necessary to satisfy the requirement, an entity shall disclose the following changes in liabilities arising from financing activities:

(a) changes from financing cash flows.

(b) changes arising from obtaining or losing control of subsidiaries or other businesses.

(c) the effect of changes in foreign exchange rates.

(d) changes in fair values.

(e) other changes

IFRS amendments to IAS 7

IFRS amendments to IAS 7

IFRS amendments to IAS 7

Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities. In addition, the disclosure requirement also applies to changes in financial assets (for example, assets that hedge liabilities arising from financing activities) if cash flows from those financial assets were, or future cash flows will be, included in cash flows from financing activities.

IFRS amendments to IAS 7

One way to fulfil the disclosure requirement is by providing a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities, including the changes identified. Where an entity discloses such a reconciliation, it shall provide sufficient information to enable users of the financial statements to link items included in the reconciliation to the statement of financial position and the statement of cash flows.

IFRS amendments to IAS 7

Disclosure 

If an entity provides the disclosure required in combination with disclosures of changes in other assets and liabilities, it shall disclose the changes in liabilities arising from financing activities separately from changes in those other assets and liabilities.

Disclosure Initiative (Amendments to IAS 7), issued in January 2016. An entity shall apply those amendments for annual periods beginning on or after 1 January 2017. Earlier application is permitted. When the entity first applies those amendments, it is not required to provide comparative information for preceding periods.

IFRS amendments to IAS 7

IFRS amendments to IAS 7:  Changes in liabilities arising from financing activities

In January 2016 the Board amended IAS 7 to require entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments were in response to requests from users, including those received at the Board’s Financial Reporting Disclosure Discussion Forum in January 2013 and reflected in the resulting Feedback Statement (‘the Feedback Statement’), which was issued in May 2013. Users highlighted that understanding an entity’s cash flows is critical to their analysis and that there is a need for improved disclosures about an entity’s debt, including changes in debt during the reporting period. The Feedback Statement noted that users had been consistently asking for the Board to introduce a requirement for entities to disclose and explain a net debt reconciliation.

In early 2014, to understand the reasons for their requests for more disclosure about net debt, the Board undertook a survey of investors. The survey sought information about why investors seek to understand the changes in debt between the beginning and the end of a reporting period. The survey also sought input on disclosures about cash and cash equivalents.

On the basis of the survey, the Board identified that investors use a net debt reconciliation in their analysis of the entity:

(a) to check their understanding of the entity’s cash flows, because it provides a reconciliation between the statement of financial position and the statement of cash flows.

(b) to improve their confidence in forecasting the entity’s future cash flows when they can use a reconciliation to check their understanding of the entity’s cash flows.

(c) to provide information about the entity’s sources of finance and how those sources have been used over time.

(d) to help them understand the entity’s exposure to risks associated with financing.

IFRS amendments to IAS 7

The survey helped the Board to understand why investors were calling for improved disclosures about changes in debt during the reporting period. The Board noted that one challenge in responding to this need was that debt is not defined or required to be disclosed in current IFRS Standards. The Board noted that finding a commonly agreed definition of debt would be difficult. However, the Board decided that it could use the definition of financing activities in IAS 7 . It therefore decided to propose a requirement to disclose a reconciliation between the amounts in the opening and the amounts in the closing statements of financial position for liabilities for which cash flows were, or future cash flows will be, classified as financing activities in the statement of cash flows.

IFRS amendments to IAS 7

IAS 7 defines financing activities as activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. The Board proposed that a reconciliation of liabilities arising from financing activities would provide the information about debt that users of financial statements were requesting.

In December 2014 the Board published an Exposure Draft Disclosure Initiative (Proposed amendments to IAS 7) (‘the 2014 Exposure Draft’) seeking views on the proposals for a reconciliation of liabilities arising from financing activities.

IFRS amendments to IAS 7

The objective of the disclosure

Feedback on the 2014 Exposure Draft noted that the proposal did not set out a disclosure objective, and consequently it was not sufficiently clear how entities would determine the most appropriate way to provide the required disclosure. The Board agreed with this feedback and included an objective within the requirement.

In setting the disclosure objective the Board decided the objective should reflect the needs of the users of financial statements, including those summarised,

IFRS amendments to IAS 7

The Board concluded that timely application of the 2016 Amendments would respond to a long-standing request from users of financial statements. Thus, the Board decided that the 2016 Amendments should be applied for annual reporting periods beginning on or after 1 January 2017, with early application permitted.

Because the 2016 Amendments were issued in January 2016, which is less than one year before the beginning of the period when some entities could be required to apply them, the Board exempted entities from providing comparative information when they first apply the amendments.

IFRS amendments to IAS 7

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