IFRS 7 Financial Instruments: Disclosures

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IFRS 7 requires entities to provide disclosures in their financial statements that enable users to evaluate:

  • the significance of financial instruments for the entity’s financial position and performance.
  • the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks. The qualitative disclosures describe management’s objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity’s key management personnel. Together, these disclosures provide an overview of the entity’s use of financial instruments and the exposures to risks they create.

IFRS 7 applies to all entities, including entities that have few financial instruments (for example, a manufacturer whose only financial instruments are cash, accounts receivable and accounts payable) and those that have many financial instruments (for example, a financial institution most of whose assets and liabilities are financial instruments).

Standard history

In April 2001 the International Accounting Standards Board (Board) adopted IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions, which had originally been issued by the International Accounting Standards Committee in August 1990.

In August 2005 the Board issued IFRS 7 Financial Instruments, which replaced IAS 30 and carried forward the disclosure requirements in IAS 32 Financial Instruments: Disclosure and Presentation. IAS 32 was subsequently renamed as IAS 32 Financial Instruments: Presentation. IAS 1 Presentation of Financial Statements (as revised in 2007) amended the terminology used throughout IFRS, including IFRS 7. In March 2009 the IASB enhanced the disclosures about fair value and liquidity risks in IFRS 7.

The Board also amended IFRS 7 to reflect that a new financial instruments Standard was issued—IFRS 9 Financial Instruments, which related to the classification of financial assets and financial liabilities.

IFRS 7 was also amended in October 2010 to require entities to supplement disclosures for all transferred financial assets that are not derecognised where there has been some continuing involvement in a transferred asset. The Board amended IFRS 7 in December 2011 to improve disclosures in netting arrangements associated with financial assets and financial liabilities.

In May 2017 when IFRS 17 Insurance Contracts was issued, it added disclosure requirements for when an entity applies an exemption for specified treasury shares or for an entity’s own repurchased financial liabilities in specific circumstances.

In September 2019 the Board amended IFRS 9 and IAS 39 by issuing Interest Rate Benchmark Reform to provide specific exceptions to hedge accounting requirements in IFRS 9 and IAS 39 for (a) highly probable requirement; (b) prospective assessments; (c) retrospective assessment (IAS 39 only); and (d) separately identifiable risk components. Interest Rate Benchmark Reform also amended IFRS 7 to add specific disclosure requirements for hedging relationships to which an entity applies the exceptions in IFRS 9 or IAS 39.

In August 2020 the Board issued Interest Rate Benchmark Reform―Phase 2 which amended requirements in IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 relating to:

•                changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities;

•                hedge accounting; and

•                disclosures.

The Phase 2 amendments apply only to changes required by the interest rate benchmark reform to financial instruments and hedging relationships.

Other Standards have made minor amendments to IFRS 7. They include Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (Amendments to IFRS 1) (issued January 2010), Improvements to IFRSs (issued May 2010), IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011), Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (issued June 2011), Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7) (issued December 2011), Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (issued October 2012), IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued November 2013), Annual Improvements to IFRSs 2012–2014 Cycle (issued September 2014), Disclosure Initiative (Amendments to IAS 1) (issued December 2014), IFRS 16 Leases (issued January 2016), Annual Improvements to IFRS Standards 2014–2016 Cycle (issued December 2016) and Amendments to IFRS 17 (issued June 2020).

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