Financial Instruments: Disclosures (IFRS 7)
Last Updated: November 7, 2012
This is an extremely extensive section and this guide is only a summary. Disclosure is not typically heavily tested on the UFE.
This IFRS covers disclosures required for financial instruments. The broad purpose of these disclosures is to enable users to evaluate:
- The significance of financial instrument’s impact on the financial statements
- The extent to which the entity is exposed to risks from financial instrument and how these risks are managed.
IAS 32 – Financial Instruments: Presentations and IAS 39 – Financial Instruments: Recognition and Measurement should be used in conjunction with this section.
This section should be applied by all entities to all types of financial instruments except the following:
- Subsidiaries, associates or joint ventures (Use IFRS 10, IAS 27, IAS 29)
- Employer’s obligation to employee benefit plans (IAS 19)
- Share-based payments (IFRS 2)
Significance of financial instruments for financial position and performance
Enable users to evaluate the significance of financial instruments on position and performance.
On the Statement of Financial Position, disclose:
- Carrying amounts of:
- Financial assets at fair value through profit or loss
- Items: Held-to-maturity, held-for-trading, loans and receivables, available-for-sale assets
- Financial liabilities at fair value through profit or loss
- Financial liabilities measured at amortized cost.
- For loans or receivables designated at fair value through profit or loss:
- Maximum credit risk exposure and any amount that is mitigated
- Amount of change to the loan due to credit risk
- Offsetting financial assets and liabilities:
- Gross amounts of assets and liabilities
- Amounts that are set off, the net amounts presented on the f/s.
- Carrying amount of financial assets it has pledged as collateral for liabilities or contingent liabilities and the terms and conditions.
- When holding collateral, the fair value of held collateral, fair value of any which the entity sold and whether they must return it, and the terms and conditions.
- Defaults and breaches (Loans payable):
- Details of any defaults during the period, carrying amount of the loan in default, whether the default was remedied.
Statement of comprehensive income
- Net gains or losses
- Total interest income and total interest cost (effective interest method) for financial assets or liabilities which are not at fair value through profit or loss
- Fee income and expense from financial assets or liabilities that are not at fair value through profit or loss as well as trust and fiduciary activities (holding or investing assets on behalf of)
- Interest income on impaired financial assets
- Impairment loss for each class of financial asset.
Numerous other disclosures are required in the summary of significant accounting policies. These include significant disclosures regarding hedge accounting (Level C topic). Although examinable, it is unlikely that disclosure of this will be heavily tested on the UFE.
Nature and extent of risks arising from financial instruments
Entity must disclose information about the nature and extent of risks related to financial instruments.
- Qualitative: Exposure to risk and how it arises, objectives and policies in managing and measuring this risk, any changes to these methods.
- Quantitative: Summary quantitative data about exposure to risk based on internal information provided to key management personnel.
- Credit risk (risk that a borrower will not make payments), by class of financial instrument:
- Maximum exposure to credit risk without considering collateral held
- Description of the collateral held and information about the credit quality.
- Liquidity risk (risk that a security cannot be traded easily/quickly):
- Maturity analysis for non-derivative and derivative financial liabilities and how it manages the liquidity risk.
- Market risk (risk of losses in positions):
- Sensitivity analysis for each type of market risk exposure and the methods and assumptions used.