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IFRS Recommendations to the disclosure

IFRS Recommendations to the disclosure

IFRS Recommendations to the disclosure: All disclosures relating to financial instruments are set out in IFRS 7. The intention of this standard 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 reporting date; and how the entity manages those risks.

Summary of required disclosures

Balance sheet and income statement related disclosures

  • Balance sheet: the carrying amount of financial instruments by category in IAS 39 (for example, held to maturity or available for sale) either on the face of the balance sheet or in the
  • Financial assets or financial liabilities at fair value through profit or loss: for loans and liabilities designated at fair value through profit or loss, the change in fair value that is attributable to credit risk and how that amount is
  • Reclassifications: information about amounts reclassified into and out of each category, the reasons for the reclassification and additional disclosures that enable readers to know what the financial position of the company would have been had the assets not been
  • Income statement: the net gains/net losses for each of the categories of financial assets and financial liabilities in IAS 39 (for example, held to maturity or available for sale) as well as total interest income and expense, and amount of any impairment loss for each class of financial asset.
  • Derecognition: certain information regarding financial assets transferred that do not qualify for derecognition, including the nature of the assets and the nature of the risks and reward to which the entity remains
  • Other related disclosures:
  • Disclosures in respect of any accepted and pledged
  • Movements on the allowance account, if an entity uses such an account to record  credit losses.
  • The existence of multiple embedded derivative features whose values are interdependent in a compound instrument, together with the effective yield on the liability   component.
  • Defaults of principal/interest in respect of loans payable and any other breaches of loan agreements that permit the lender to demand repayment.

IFRS Recommendations to the disclosure

Other disclosures

Accounting policies

Entities are required to disclose, in the summary of significant accounting policies, the measurement basis (or bases) used in preparing the financial statements and the other accounting policies used that are relevant to an understanding of the financial  statements

IFRS Recommendations to the disclosure

Hedge accounting

Entities are required to disclose, for each type of hedge:

  • A description of the hedge;
  • A description of the hedging instruments and their fair values at the balance sheet date;
  • The nature of the risks being hedged; and
  • The ineffectiveness recognised in the income statement for each type of

IFRS Recommendations to the disclosure

Fair value

Entities are required to disclose the fair value of each class of financial assets and financial liabilities in a way that permits it to be compared with its carrying value. They also disclose the methods and significant assumptions applied in determining fair values for each class of financial assets or financial liabilities.

Management classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements (the same hierarchy as in SFAS No. 157 ‘Fair Value Measurements issued by the FASB). The fair value hierarchy has the following levels:

  • Level 1 – quoted prices (unadjusted) in active markets for identical assets or
  • Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
  • Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

IFRS Recommendations to the disclosure

For fair value measurements recognised in the statement of financial position management discloses for each class of financial instrument:

  • Fair value measurements by level of the fair value hierarchy (Level 1, Level 2 or Level 3).
  • Any significant transfers between Level 1 and Level 2 of the fair value
  • A reconciliation from the beginning balances to the ending balances for Level 3
  • For Level 3, the amount of total gains or losses recognised in the income statement that relate to assets and liabilities held at the end of the reporting
  • For Level 3, if changing one or more of the inputs to reasonably possible alternative assumptions would change fair value significantly, state that fact and disclose the effect of those changes

Qualitative and quantitative disclosures of risks

  • Disclosing risk ‘through eyes of management’: IFRS 7 requires quantitative and qualitative disclosures about an entity’s exposure to credit risk, liquidity risk and market risk arising from its use of financial instruments. It requires the following qualitative disclosures for each type of risk:
  • The exposures to the risk and how they
  • The entity’s objectives, policies and processes for managing the
  • The methods used to measure the
  • Any changes to the above disclosures from the previous reporting

IFRS Recommendations to the disclosure

The standard also requires summary quantitative data about the entity’s exposure to each type of risk at the reporting date. This information is to be given ‘through the eyes of  management’

  • that is, based on internal reports provided to management. Certain minimum disclosures are also required to the extent they are not already covered by the ‘through the eyes of management’ information, including disclosure of significant concentration of

IFRS Recommendations to the disclosure

  • Credit risk: disclose by class of financial instrument:
    • Maximum credit-risk exposure at the balance sheet date, without taking account of any collateral
    • Description of collateral held as security and other credit enhancements and estimate of their fair
    • Information about the credit quality of financial assets that are neither past due nor
    • The carrying amount of financial assets that would otherwise be past due or impaired whose terms have been
    • An analysis of the age of financial assets that are past due but not
    • An analysis of financial assets that are individually determined to be impaired as at the end of the reporting period and the factors
    • When an entity obtains financial or non-financial assets during the period by taking possession of collateral it holds as security, disclose the nature and carrying amount of the assets obtained, and when the assets are not readily convertible into cash, its policies for disposing of such assets of for using them in its
  • Liquidity risk: disclose a separate maturity analysis for derivative and non-derivative financial liabilities (including issued financial guarantee contracts and loan commitments) categorised by their earliest contractual maturity date. The contractual amounts disclosed are the contractual undiscounted cash flows. Specific provisions for derivatives and financial assets are provided in IFRS
  • Market risk: provide a sensitivity analysis for each component of market risk to which an entity is exposed (currency risk, interest rate risk and other price risk). Every entity discloses the impact of reasonably possible movements in each relevant market risk variable on profit and loss and equity; the methods and assumptions used in preparing the sensitivity analysis; and changes from the previous period in the methods and assumptions used and the reasons for such.

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