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IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures

IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures

IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures: The International Financial Reporting Standards, usually called the IFRS Standards, are standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable and relevant as per the users internal or external. IFRS, with the exception of IAS 29 Financial Reporting in Hyperinflationary Economies and IFRIC 7 Applying the Restatement Approach under IAS 29, are authorized in terms of the historical cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the units of constant purchasing power paradigm.

IFRS began as an attempt to harmonize accounting across the European Union but the value of harmonization quickly made the concept attractive around the world. However, it has been debated whether or not de facto harmonization has occurred. Standards that were issued by IASC (the predecessor of IASB) are still within use today and go by the name International Accounting Standards (IAS), while standards issued by IASB are called IFRS. IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the new International Accounting Standards Board (IASB) took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards “International Financial Reporting Standards”.

IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures: Elements of financial statements

The elements directly related to the measurement of the statement of financial position include:

  • Asset: An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
  • Liability: A liability is a present obligation of the entity arising from the past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits, i.e. assets.
  • Equity: Nominal equity is the nominal residual interest in the nominal assets of the entity after deducting all its liabilities in nominal value.

The financial performance of an entity is presented in the statement of comprehensive income, which consists of the income statement (Statement of Profit/Loss) and the statement of other comprehensive income (usually presented in two separate statements). Financial performance includes the following elements (which are recognised in the income statement or other comprehensive income as required by the applicable IFRS standard):

  • Revenues: increases in economic benefit during an accounting period in the form of inflows or enhancements of assets, or decrease of liabilities that result in increases in equity. However, it does not include the contributions made by the equity participants (for example owners, partners or shareholders).
  • Expenses: decreases in economic benefits during an accounting period in the form of outflows, or depletions of assets or incurrences of liabilities that result in decreases in equity. However, these don’t include the distributions made to the equity participants.

IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures

Results recognised in other comprehensive income are limited to the following specific circumstances:

  • Remeasurements of defined benefit assets or liabilities (as defined in the standard IAS 19)
  • Increases or decreases in the fair value of financial assets classified as available for sale (with the exception of impairment losses)(as defined in the standard IAS 39)
  • Increases or decreases resulting from the application of a revaluation of property, plant and equipment or intangible assets
  • Exchange differences resulting from the translation of foreign operations (subsidiary, associate, joint arrangement or branch of a reporting entity, the activities of which are conducted in a country or currency other than those of the reporting entity) according to the standard IAS 21
  • the portion of the gain or loss on the hedging instrument in a cash flow hedge (or a hedge of a net investment in a foreign operation, as this is accounted similarly ) that is determined to be an effective hedge

IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures

The statement of changes in equity consists of a reconciliation of the changes in equity in which the following information is provided:

  • total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests;
  • for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8; and
  • for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:
    • profit or loss;
    • other comprehensive income; and
    • transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures

Statement of Cash Flows

  • Operating cash flows: the principal revenue-producing activities of the entity and are generally calculated by applying the indirect method, whereby profit or loss is adjusted for the effects of transaction of a non-cash nature, any deferrals or accruals of past or future cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
  • Investing cash flows: the acquisition and disposal of long-term assets and other investments not included in cash equivalents. These represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities.
  • Financing cash flows: activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. These are important because they are useful in predicting claims on future cash flows by providers of capital to the entity.

Notes to the Financial Statements: These shall (a) present information about the basis of preparation of the financial statements and the specific accounting policies used; (b) disclose the information required by IFRSs that is not presented elsewhere in the financial statements; and (c) provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.

The objective of this IFRS is to require entities to provide disclosures in their financial statements that enable users to evaluate: (a) the significance of financial instruments for the entity’s financial position and performance; and (b) 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. 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. 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). 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. 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.

IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures

Disclosure requirements of IFRS 7

IFRS requires certain disclosures to be presented by category of instrument based on the IAS 39 measurement categories. Certain other disclosures are required by class of financial instrument. For those disclosures an entity must group its financial instruments into classes of similar instruments as appropriate to the nature of the information presented.

The two main categories of disclosures required by IFRS 7 are:

  1. information about the significance of financial instruments.
  2. information about the nature and extent of risks arising from financial instruments

IFRS New approaches to disclosure in accordance with IFRS7 Financial Instruments Disclosures

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