IFRS 7 Financial Instruments: Disclosures requires disclosure of information about the significance of financial instruments to an entity, and the nature and extent of risks arising from those financial instruments, both in qualitative and quantitative terms. Specific disclosures are required in relation to transferred financial assets and a number of other matters.
History of IFRS 7
Effective for annual periods beginning on or after 1 January 2016
Amendments under consideration by IASB
Summary of IFRS 7
Overview of IFRS 7
- adds certain new disclosures about financial instruments to those previously required by IAS 32 Financial Instruments: Disclosure and Presentation (as it was then cited)
- replaces the disclosures previously required by IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions
- puts all of those financial instruments disclosures together in a new standard on Financial Instruments: Disclosures. The remaining parts of IAS 32 deal only with financial instruments presentation matters.
Disclosure requirements of IFRS 7
IFRS requires certain disclosures to be presented by category of instrument based on the IAS 39 measurement categories. Certain other disclosures are required by class of financial instrument. For those disclosures an entity must group its financial instruments into classes of similar instruments as appropriate to the nature of the information presented. [IFRS 7.6]
The two main categories of disclosures required by IFRS 7 are:
- information about the significance of financial instruments.
- information about the nature and extent of risks arising from financial instruments
Information about the significance of financial instruments
Statement of financial position
- Disclose the significance of financial instruments for an entity's financial position and performance. [IFRS 7.7] This includes disclosures for each of the following categories: [IFRS 7.8]
- financial assets measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition
- held-to-maturity investments
- loans and receivables
- available-for-sale assets
- financial liabilities at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition
- financial liabilities measured at amortised cost
- Other balance sheet-related disclosures:
- special disclosures about financial assets and financial liabilities designated to be measured at fair value through profit and loss, including disclosures about credit risk and market risk, changes in fair values attributable to these risks and the methods of measurement.[IFRS 7.9-11]
- reclassifications of financial instruments from one category to another (e.g. from fair value to amortised cost or vice versa) [IFRS 7.12-12A]
- information about financial assets pledged as collateral and about financial or non-financial assets held as collateral [IFRS 7.14-15]
- reconciliation of the allowance account for credit losses (bad debts) by class of financial assets[IFRS 7.16]
- information about compound financial instruments with multiple embedded derivatives [IFRS 7.17]
- breaches of terms of loan agreements [IFRS 7.18-19]
Statement of comprehensive income
- Items of income, expense, gains, and losses, with separate disclosure of gains and losses from: [IFRS 7.20(a)]
- financial assets measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition.
- held-to-maturity investments.
- loans and receivables.
- available-for-sale assets.
- financial liabilities measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition.
- financial liabilities measured at amortised cost.
- Other income statement-related disclosures:
- total interest income and total interest expense for those financial instruments that are not measured at fair value through profit and loss [IFRS 7.20(b)]
- fee income and expense [IFRS 7.20(c)]
- amount of impairment losses by class of financial assets [IFRS 7.20(e)]
- interest income on impaired financial assets [IFRS 7.20(d)]
- Accounting policies for financial instruments [IFRS 7.21]
- Information about hedge accounting, including: [IFRS 7.22]
- description of each hedge, hedging instrument, and fair values of those instruments, and nature of risks being hedged
- for cash flow hedges, the periods in which the cash flows are expected to occur, when they are expected to enter into the determination of profit or loss, and a description of any forecast transaction for which hedge accounting had previously been used but which is no longer expected to occur
- if a gain or loss on a hedging instrument in a cash flow hedge has been recognised in other comprehensive income, an entity should disclose the following: [IAS 7.23]
- the amount that was so recognised in other comprehensive income during the period
- the amount that was removed from equity and included in profit or loss for the period
- the amount that was removed from equity during the period and included in the initial measurement of the acquisition cost or other carrying amount of a non-financial asset or non- financial liability in a hedged highly probable forecast transaction
- comparable carrying amounts
- description of how fair value was determined
- the level of inputs used in determining fair value
- reconciliations of movements between levels of fair value measurement hierarchy additional disclosures for financial instruments whose fair value is determined using level 3 inputs including impacts on profit and loss, other comprehensive income and sensitivity analysis
- information if fair value cannot be reliably measured
The fair value hierarchy introduces 3 levels of inputs based on the lowest level of input significant to the overall fair value (IFRS 7.27A-27B):
- Level 1 – quoted prices for similar instruments
- Level 2 – directly observable market inputs other than Level 1 inputs
- Level 3 – inputs not based on observable market data
Note that disclosure of fair values is not required when the carrying amount is a reasonable approximation of fair value, such as short-term trade receivables and payables, or for instruments whose fair value cannot be measured reliably. [IFRS 7.29(a)]
Nature and extent of exposure to risks arising from financial instruments
Qualitative disclosures [IFRS 7.33]
- The qualitative disclosures describe:
- risk exposures for each type of financial instrument
- management's objectives, policies, and processes for managing those risks
- changes from the prior period