IFRS 7 25 requires the disclosure of the fair value of financial assets and financial liabilities by class in a way that permits it to be compared with its carrying amount for each class of financial asset and financial liability.
An entity should disclose for each class of financial instrument the methods and, when valuation techniques are used, the assumptions applied in determining fair values of each class of financial asset or financial liability.
Financial instruments at amortised cost
IFRS 7 25 requires the disclosure of the fair value irrespective of the fact that a financial instrument is measured at amortised cost in the statement of financial position.
The disclosure is presented in a way that allows a comparison of the amounts disclosed and the carrying amounts. However, if the amounts disclosed in the statement of financial position are assumed to be the fair values (or approximately the fair values), the fund discloses that fact but is not required to disclose a separate table.
The following examples illustrate when the amounts disclosed in the statement of financial position approximately equal the fair values to be disclosed under IFRS 7 25:
- An investment fund designates all its investments at fair value through profit or loss: the amounts attributable to unitholders would be assumed to approximate the fair value.
- The carrying amount of trade receivables due within one year (for example, receivables from tenants) less impairment approximates the fair value of the amounts receivable.
- The fair value of the variable interest bank borrowings is estimated to be the discounted contractual future cash flows.
Uncalled capital commitments
The investors of a private equity fund committed themselves to invest C150 million into the fund over the next 10 years. The fund already called C50 million over the past two years. The remaining uncalled capital commitments amount to C100 million at the balance sheet date.
Is a private equity fund required to disclose the total amount of outstanding uncalled capital commitments (C100 million)?
No. IFRS 7 applies to both recognised and unrecognised capital commitments. However, the disclosure requirements in IFRS 7 25 only requires the disclosure of the fair value of such commitments, which should be assessed by applying an option price model. The fair value of such capital commitments in private equity funds is usually nil, as the new fund units are issued at fair value. However, disclosure of the total amount may not be required under IFRS 7 25 but is required under IAS 37. IAS 37 89 requires the disclosure of an estimate of the financial effects, measured using the principles set out for provisions in IAS 37 36 – 52.
disclosure of fair value of financial assets and liabilities
disclosure of fair value of financial assets and liabilities disclosure of fair value of financial assets and liabilities disclosure of fair value of financial assets and liabilities