IFRS 7 | Financial Instruments: Disclosures

1

Objective

The objective is to require disclosures 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 them and how the entity manages those risks.

3

Scope

This Standard applies to all entities and all types of financial instruments, with specific exceptions (e.g., interests in subsidiaries/associates/joint ventures, employee benefits, insurance contracts, share-based payments).

6

Classes

When complying with disclosure requirements, an entity groups financial instruments into classes that are appropriate to the nature of the information disclosed and take into account the characteristics of those instruments.

8

Categories

The carrying amounts of specific categories of financial assets and liabilities (as defined in IFRS 9) must be disclosed either in the statement of financial position or in the notes. These include assets/liabilities at fair value through profit or loss, at amortised cost, and assets at fair value through other comprehensive income.

9

Designated FVPL (Assets)

If an entity designates a financial asset as measured at fair value through profit or loss, it must disclose its maximum exposure to credit risk and the amount of change in fair value attributable to changes in credit risk.

10

Designated FVPL (Liabilities)

If a financial liability is designated as at fair value through profit or loss, the entity discloses the change in fair value attributable to changes in credit risk and the difference between the carrying amount and the amount contractually payable at maturity.

11A

Equity Investments (FVOCI)

If equity instruments are designated at fair value through other comprehensive income, disclosures include which investments are designated, reasons for the choice, fair value, dividends recognised, and transfers within equity.

12B

Reclassification

If financial assets are reclassified, the entity discloses the date, explanation of the change in business model, and the amounts reclassified.

13B

Offsetting

Entities must disclose information to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with recognised financial assets and liabilities.

14

Collateral Pledged

An entity discloses the carrying amount of financial assets pledged as collateral for liabilities and the terms and conditions relating to the pledge.

15

Collateral Held

When an entity holds collateral it is permitted to sell or repledge, it discloses the fair value of collateral held and sold/repledged, and associated terms and conditions.

18

Defaults and Breaches

For loans payable recognised at the reporting date, the entity discloses details of any defaults on principal, interest, or redemption terms, the carrying amount of loans in default, and whether the default was remedied or terms renegotiated.

20

Comprehensive Income

An entity discloses net gains or losses on financial instruments by category (e.g., FVPL, amortised cost, FVOCI), total interest revenue and expense for instruments not at FVPL, and fee income/expense.

21A

Accounting Policies

In accordance with IAS 8, an entity discloses material accounting policy information, which is expected to include the measurement basis (or bases) for financial instruments.

21B

Hedge Accounting

An entity applies disclosure requirements for risk exposures it hedges and for which it applies hedge accounting. Disclosures cover risk management strategy, effects on future cash flows, and effects on the financial statements.

22A

Risk Management Strategy

The entity explains its risk management strategy for each risk category hedged, enabling users to evaluate how risks arise, how they are managed (e.g., hedging item in entirety or risk component), and the extent of risk exposures.

23A

Future Cash Flows

Quantitative information is disclosed to allow users to evaluate the terms and conditions of hedging instruments and how they affect the amount, timing, and uncertainty of future cash flows (e.g., timing of nominal amounts, average price/rate).

24A

Financial Effects of Hedging

An entity discloses amounts related to hedging instruments (carrying amount, line item, change in fair value, nominal amounts) in a tabular format separately by risk category for each type of hedge.

24B

Hedged Items

Disclosures for hedged items include carrying amounts, accumulated fair value hedge adjustments, line items, changes in value used for ineffectiveness, and balances in the cash flow hedge reserve.

24C

Hedge Ineffectiveness

Disclosures include hedge ineffectiveness recognised in profit or loss, the line item used, and hedging gains/losses recognised in other comprehensive income.

25

Fair Value

For each class of financial assets and liabilities, an entity discloses the fair value in a way that permits comparison with its carrying amount, except where carrying amount is a reasonable approximation or for certain lease liabilities.

31

Risk Disclosures

An entity discloses information to enable users 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.

33

Qualitative Risk Disclosures

For each type of risk (credit, liquidity, market), the entity discloses the exposures and how they arise, its objectives, policies, and processes for managing the risk, and the methods used to measure the risk.

34

Quantitative Risk Disclosures

The entity discloses summary quantitative data about its exposure to risk based on information provided internally to key management personnel, along with specific quantitative disclosures required by other paragraphs.

35B

Credit Risk Objectives

Credit risk disclosures must enable users to understand the effect of credit risk on the amount, timing, and uncertainty of future cash flows. This includes credit risk management practices, quantitative/qualitative information on expected credit losses (ECL), and credit risk exposure.

35F

Credit Risk Management

The entity explains its credit risk management practices, including how it determines significant increases in credit risk, definitions of default, grouping of instruments, write-off policies, and application of modification requirements.

35H

Loss Allowance Reconciliation

To explain changes in the loss allowance, the entity provides a reconciliation from the opening to the closing balance, showing separately changes for 12-month ECL, lifetime ECL (not credit-impaired), and lifetime ECL (credit-impaired).

35K

Collateral and ECL

The entity discloses information to understand the effect of collateral and other credit enhancements on the amounts arising from expected credit losses.

35M

Credit Risk Exposure

To assess credit risk exposure, the entity discloses the gross carrying amount of financial assets and exposure to loan commitments by credit risk rating grades.

39

Liquidity Risk

The entity discloses a maturity analysis for non-derivative financial liabilities (showing remaining contractual maturities) and derivative financial liabilities (if essential for understanding), and describes how it manages liquidity risk.

40

Sensitivity Analysis

A sensitivity analysis is disclosed for each type of market risk (currency, interest rate, other price), showing how profit or loss and equity would have been affected by reasonably possible changes in the relevant risk variable.

42B

Transfers of Assets

For transferred financial assets not derecognised and continuing involvement in derecognised assets, disclosures must enable users to understand the relationship between assets and associated liabilities and evaluate the nature and risks of continuing involvement.

Appendix A

Definitions

• 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.