IFRS 7: Financial Instruments: Disclosures – KLiPs

IFRS 7: Financial Instruments: Disclosures – KLiPs – Part 1

There are 2 KLiPs to explain this standard.
In this KLiP, we will discuss Part 1 which has 3 sections:

  1. Exemptions
  2. Disclosure, and
  3. Significance of financial instruments

This standard enables users of financial statements to analyze:

  1. The impact of financial instruments on the financial performance and position of the entity, and
  2. The entity’s exposure to the risks relating to its financial instruments, the nature and extent of the risks, along with the strategies of the entity to manage those risks

 

  1. Exemption

There are some types of instruments that are exempt from IFRS 7, namely:

  • Subsidiaries, joint ventures, and associates
  • Insurance contracts
  • Employee benefit plans
  • Share-based payments, and
  • Equity instruments in line with IAS 32

 

  1. Disclosure

IFRS 7 requires certain disclosures in two main areas:

  1. Significance of financial instruments, and
  2. Nature and extent of risks from financial instruments

 

  1. Significance of financial instruments

The first area of disclosure in IFRS 7 is the significance of financial instruments which branch out into two further sections – Financial position, and statement of comprehensive income

  1. Disclosures for statement of financial position

This includes:

  1. Carrying amounts of the financial instruments by their categories
  2. Financial assets or financial liabilities measured at fair value through profit or loss
  3. Investments in equity instruments designated at fair value through other comprehensive income
  4. Reclassifications
  5. Offsetting of financial assets and financial liabilities
  6. Collaterals
  7. Allowance account for credit losses, and
  8. Compound financial instruments with multiple embedded derivatives
     
  1. Disclosures for the statement of comprehensive income

You should disclose the items of income, expense, gains, or losses mainly:

  1. The loss or gain
  2. The amount of impairment loss for each class of financial asset
  3. Any interest income or expense relating to financial asset or financial liability determined using effective interest rate
  4. Any amount of gain or loss arising on de-recognition of financial asset in the current year

In the next KLiP, we will discuss the second point - nature and extent of risks from financial instruments in more detail.


END OF PART 1


IFRS 7: Financial Instruments: Disclosures – KLiPs – Part 2

This is the second part of this KLiP explaining IFRS 7.
In this KLiP, we will discuss Part 2 which has 2 sections:

  1. Nature and extent of risks, and
  2. Other disclosures
     
  1. Nature and extent of risks

IFRS 7 requires qualitative and quantitative disclosures for three main risks:

  1. Credit risk
    Relating to financial assets and possible financial loss due to counterparty failing to pay its obligations.
     
  2. Liquidity risk

Relating to financial liabilities, for example, an entity will not meet its obligations from financial liabilities to be settled with cash or other financial asset.
 

  1. Market risk
    Relating to the fair value or future cash flows from the financial assets or financial liabilities. This will fluctuate based on market price changes.
     
  1. Other disclosures

Except for significance of financial instruments and nature of risk, other disclosures required include:

  • Transfers of financial assets, and
  • Information required on initial application of IFRS 9

END OF PART 2

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