IFRS 7 Financial Instruments: Disclosures

IFRS 7 requires 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, 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 (IFRS 7.1).

IFRS 7 does not deal with recognition, measurement or presentation of financial instruments as these are dealt with by IAS 32 and IFRS 9.

All entities and all financial instruments are in the scope of IFRS 7 with certain exceptions listed in paragraph IFRS 7.3.

In many instances, IFRS 7 requires disclosures by class of financial instrument which are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. These classes are determined by the entity and are not the same as the categories of financial instruments specified in IFRS 9 (IFRS 7.B1-B3). An entity should also provide sufficient information to permit reconciliation to the line items presented in the statement of financial position (IFRS 7.6).

The first aim of IFRS 7 is for an entity to disclose information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance (IFRS 7.7). In order to achieve this, specific disclosure requirements are provided for:

  • Categories of financial assets and financial liabilities as specified in IFRS 9 (IFRS 7.8)
  • Financial assets or financial 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 financial liabilities (IFRS 7.13A-13F; B40-B53;IG40D)
  • Collaterals (IFRS 7.14-15)
  • Credit loss allowance on assets measured at FVOCI (IFRS 7.16A)
  • Compound financial instruments with multiple embedded derivatives (IFRS 7.17)
  • Defaults and breaches for loans payable (IFRS 7.18-19)
  • Items of income, expense, gains or losses split by categories (IFRS 7.20-20A)
  • Accounting policies (IFRS 7.21;B5)
  • Hedge accounting (IFRS 7.21A-24G;IG13C-E)
  • Day 1 profits (IFRS 7.28)
  • Fair value and comparison with carrying amounts (IFRS 7.25-29; IG14)

The disclosures provided should depend on the extent of an entity’s use of financial instruments and the extent to which it assumes associated risks. Entities with many financial instruments and related risks should provide more disclosure to communicate those risks to users of financial statements. Conversely, entities with few financial instruments and related risks may provide less extensive disclosure (IFRS 7.21D,B3,BC40).

The second aim of IFRS 7 is for an entity to disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period (IFRS 7.31-32A; B6). In order to achieve this, specific disclosure requirements are provided for:

  • Qualitative disclosures relating to 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 (currency risk, interest rate risk, other price risk) (IFRS 7.42; B17-B28; IG32-IG40C)

The disclosures provided should depend on the extent of an entity’s use of financial instruments and the extent to which it assumes associated risks. Entities with many financial instruments and related risks should provide more disclosure to communicate those risks to users of financial statements. Conversely, entities with few financial instruments and related risks may provide less extensive disclosure (IFRS 7.21D,B3,BC40).

Disclosure requirements relating to transfers of financial assets are set out in paragraphs IFRS 7.42A-42G; B29-B39.

 


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Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). The information provided on this website does not constitute professional advice and should not be used as a substitute for consultation with a certified accountant.