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IFRS 7-Financial Instruments: Disclosures

Objective

The objective of this IFRS 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 end of the reporting period, and how the entity manages those risks.

Scope

This IFRS shall be applied by all entities to all types of financial instruments, except:

  1. those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IFRS 10, IAS 27 or IAS 28 require or permit an entity to account for an interest in a subsidiary, associate or joint venture using IFRS 9; in those cases, entities shall apply the requirements of this IFRS and, for those measured at fair value, the requirements of IFRS 13 Fair Value Measurement. Entities shall also apply this IFRS to all derivatives linked to interests in subsidiaries, associates or joint ventures unless the derivative meets the definition of an equity instrument in IAS 32.
  2. employers’ rights and obligations arising from employee benefit plans, to which IAS 19 Employee Benefits applies.
  3. [deleted]
  4. insurance contracts as defined in IFRS 17 Insurance Contracts or investment contracts with discretionary participation features within the scope of IFRS 17. However, this IFRS applies to:
  • derivatives that are embedded in contracts within the scope of IFRS 17, if IFRS 9 requires the entity to account for them separately.
  • investment components that are separated from contracts within the scope of IFRS 17, if IFRS 17 requires such separation, unless the separated investment component is an investment contract with discretionary participation features.
  • an issuer’s rights and obligations arising under insurance contracts that meet the definition of financial guarantee contracts, if the issuer applies IFRS 9 in recognising and measuring the contracts. However, the issuer shall apply IFRS 17 if the issuer elects, in accordance with paragraph 7(e) of IFRS 17, to apply IFRS 17 in recognising and measuring the contracts.
  • an entity’s rights and obligations that are financial instruments arising under credit card contracts, or similar contracts that provide credit or payment arrangements, that an entity issues that meet the definition of an insurance contract if the entity applies IFRS 9 to those rights and obligations in accordance with paragraph 7(h) of IFRS 17 and paragraph 2.1(e)(iv) of IFRS 9.
  • an entity’s rights and obligations that are financial instruments arising under insurance contracts that an entity issues that limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract, if the entity elects, in accordance with paragraph 8A of IFRS 17, to apply IFRS 9 instead of IFRS 17 to such contracts.

5. financial instruments, contracts and obligations under share-based payment transactions to which IFRS 2 Share-based Payment applies, except that this IFRS applies to contracts within the scope of IFRS 9.

6. instruments that are required to be classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D of IAS 32.

Defined terms

credit risk The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

credit risk rating grades Rating of credit risk based on the risk of a default occurring on the financial instrument.

currency risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

interest rate risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

liquidity risk The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

loans payable Loans payable are financial liabilities, other than short-term trade payables on normal credit terms.

market risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

other price risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer or by factors affecting all similar financial instruments traded in the market

Disclosure

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.

In accordance with paragraph 117 of IAS 1 Presentation of Financial Statements (as revised in 2007), an entity discloses material accounting policy information. Information about the measurement basis (or bases) for financial instruments used in preparing the financial statements is expected to be material accounting policy information

An entity shall apply the disclosure requirements in paragraphs 21B–24F for those risk exposures that an entity hedges and for which it elects to apply hedge accounting. Hedge accounting disclosures shall provide information about:

  • an entity’s risk management strategy and how it is applied to manage risk;
  • how the entity’s hedging activities may affect the amount, timing and uncertainty of its future cash flows; and
  • the effect that hedge accounting has had on the entity’s statement of financial position, statement of comprehensive income and statement of changes in equity.

For each type of risk arising from financial instruments, an entity shall disclose:

  • the exposures to risk and how they arise;
  • its objectives, policies and processes for managing the risk and the methods used to measure the risk; and
  • any changes in (a) or (b) from the previous period.

For each type of risk arising from financial instruments, an entity shall disclose:

  1. summary quantitative data about its exposure to that risk at the end of the reporting period. This disclosure shall be based on the information provided internally to key management personnel of the entity (as defined in IAS 24 Related Party Disclosures), for example the entity’s board of directors or chief executive officer.
  2. the disclosures required by paragraphs 35A–42, to the extent not provided in accordance with (1).
  3. concentrations of risk if not apparent from the disclosures made in accordance with (1) and (2).

Improving Disclosures about Financial Instruments (Amendments to IFRS 7) was approved for issue by the fourteen members of the International Accounting Standards Board.

Disclosuresβ€”Transfers of Financial Assets (Amendments to IFRS 7) was approved for issue by the fourteen members of the International Accounting Standards Board.

Mandatory Effective Date of IFRS 9 and Transition Disclosures (Amendments to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7) was approved for publication by fourteen of the fifteen members of the International Accounting Standards Board. Ms McConnell dissented from the issue of the amendments. Her dissenting opinion is set out after the Basis for Conclusions.

Disclosuresβ€”Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) was approved for issue by the fifteen members of the International Accounting Standards Board.