IFRS 7 Financial Instruments: Disclosures

Last updated: 15 February 2024

IFRS 7 mandates that entities disclose specific information in their financial statements, assisting users in understanding (IFRS 7.1):

• The significance of financial instruments to the entity’s financial position and performance.
• The nature and extent of risks from financial instruments during, and at the close of, the reporting period.
• How the entity manages these risks.

The level of detail in these disclosures should reflect the entity’s usage of financial instruments and its exposure to associated risks. Entities engaged extensively with financial instruments and risks must provide detailed disclosures in their financial statements. Conversely, entities with minimal engagement in financial instruments and risks can provide less detailed disclosures (IFRS 7.21D, B3, BC40).

All entities and financial instruments fall within the scope of IFRS 7, with specific exceptions outlined in IFRS 7.3.

Significance of financial instruments

IFRS 7 aims to ensure entities disclose information allowing financial statement users to evaluate the impact of financial instruments on their financial position and performance (IFRS 7.7). This includes disclosures about:

• Categories of financial assets and liabilities as per IFRS 9 (IFRS 7.8).
• Financial assets or liabilities at FVTPL (IFRS 7.9-11).
• Investments in equity instruments designated at FVOCI (IFRS 7.11A-B).
• Reclassifications (IFRS 7.12B-D).
• Offsetting financial assets and liabilities (IFRS 7.13A-13F; B40-B53; IG40D).
• Collateral (IFRS 7.14-15).
• Credit loss allowance for assets measured at FVOCI (IFRS 7.16A).
• Compound financial instruments with multiple embedded derivatives (IFRS 7.17).
• Defaults and breaches in loans payable (IFRS 7.18-19).
• Breakdown of income, expenses, gains, or losses by category (IFRS 7.20-20A).
• Accounting policies (IFRS 7.21; B5).
• Hedge accounting (IFRS 7.21A-24G; IG13C-E).
• Day 1 gains/losses (IFRS 7.28).
• Fair value and its comparison with carrying amounts (IFRS 7.25-29; B1-B3; IG14).

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Nature and extent of risks

The second objective of IFRS 7 is to require entities to disclose information that assists users in evaluating the nature and extent of risks from financial instruments at the end of the reporting period (IFRS 7.31-32A; B6). This includes disclosures on:

• Qualitative information about risk (IFRS 7.33; B7-B8; IG15-IG17).
• Summarised quantitative data for each type of risk (IFRS 7.34-35; IG18-IG20).
• Credit risk (IFRS 7.35A-38; B8A-B10; IG20A-IG22).
• Liquidity risk (IFRS 7.39; B10A-B11F; IG31A).
• Market risk (including currency, interest rate, and other price risks) (IFRS 7.42; B17-B28; IG32-IG40C).

Transfers of financial assets

Disclosure requirements for transfers of financial assets are detailed in IFRS 7.42A-42G; B29-B39.

Classes of financial instruments and level of disclosure

IFRS 7 often requires disclosures by class of financial instrument, which should be appropriate to the nature of the disclosed information and consider the characteristics of those instruments. These classes, determined by the entity, differ from the categories specified in IFRS 9 (IFRS 7.B1-B3). Entities should also provide enough information to reconcile with the line items in the statement of financial position (IFRS 7.6).

More about financial instruments

See other pages relating to financial instruments: