Disclosure Financial Instruments – FAQ | IFRS

Disclosure financial instruments

IFRS 7 requires certain disclosures to be presented by category of an instrument based on the IFRS 9 recognition and measurement categories of financial instruments (previously 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:

  1. information about the significance of financial instruments [IFRS 7 7 – 30]
  2. information about the nature and extent of risks arising from financial instruments [IFRS 7 31 – 42]

So IFRS 7 bets on two disclosure options for these two main categories of disclosures:

  • specific disclosure requirements by a defined set of categories of financial instrument [IFRS 9 4.1 – 4.4], and
  • specific disclosure requirements by appropriate classes of financial instruments grouped based on the nature of the presented information [IFRS 7 B1 – B5].

Why?

Financial instruments are complex, come in a great variety of contracts, risks, and products, just to name a few………..

All financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs. [IFRS 9 5.1.1]

The defined set of (measurement) categories of financial instruments is included in IFRS 9 (and revised accordingly in IFRS 7 8):

  • financial assets at amortised cost, after the conditions in the SPPI test and the business model (hold to collect) test, are met, unless at initial recognition designated at fair value through profit or loss,
  • financial assets at fair value through other comprehensive income (FVOCI), after the conditions in the SPPI test and the business model (hold to collect and sell) test, are met, unless at initial recognition designated at fair value through profit or loss,
  • financial assets at fair value through profit or loss (FVPL), the remainder category if the conditions in the SPPI test and the business model test, are not met, or at initial recognition designated at fair value through profit or loss,
  • financial liabilities at amortised cost (unless held for trading or designated at FVPL, see below)
  • financial liabilities at fair value through profit or loss,
    • financial liabilities held for trading
    • at initial recognition, designated at fair value through profit or loss. [IFRS 7 8]

Classes of financial instruments are potentially determined at a lower level than the measurement categories and need to be reconciled back to the balance sheet. [IFRS 7 6]

The level of detail for classes of financial instruments should be determined on an entity specific basis and may be defined for each individual disclosure in a different way. In determining the specific classes of financial instruments, an entity should, at a minimum:

  • distinguish financial instruments at amortised cost from financial assets at fair value,
  • classify financial contracts outside the scope of IFRS 7 as a separate class or classes to which the disclosure requirements of IFRS 7 do not apply to this class or classes. Off course guidance can be obtained from IFRS 7 and other IFRSs in such a case. [IFRS 7 B2]

In addition, IFRS 7 requires certain disclosures to be provided by class of financial instrument, including the following:

  • the financial assets not qualifying for derecognition,
  • the reconciliation of an allowance account,
  • the amount of impairment loss for financial assets,
  • fair values,
  • specific disclosures relating to credit risks.

Loans and receivables

For example, a bank’s category ‘loans and receivables‘ may comprise more than one type (or class) of loans and receivables, unless the loans and receivables have similar characteristics. So unless the loans and receivables have similar characteristics, a bank can classify loans and receivables as follows:

  • by type of customer – commercial loans (loans to businesses), loans to individuals and/or loans to families, or
  • by type of loans (product) – mortgages, credit card debt, unsecured loans and/or bank overdrafts.

Available-for-sale financial assets

Similar to loans and receivables, ‘available-for-sale financial assets’ may be classified into bond investments and equity investments. The equity investments may be further detailed into listed and unlisted equity investments, similar to the situation that listed loans to enterprises are bonds and separated from commercial loans (see above loans and receivables).


Disclosures presented by category and by class of instrument 

Disclosures presented by category and by class of instrument  Disclosures presented by category and by class of instrument  Disclosures presented by category and by class of instrument

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