IFRS 7 Financial Instruments: Disclosure‎

Objective

IFRS 7 necessitates that entities disclose in their financial statements information that assists users in assessing:

• Financial instruments hold immense significance when it comes to evaluating an entity's financial standing and performance. These instruments encompass a wide range of assets and liabilities that directly impact the organization's financial position and performance. Through the strategic use of financial instruments, businesses can enhance their liquidity, hedge against market fluctuations, and maximize their returns on investments.
• The nature and extent of risks that arise 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 principles set forth in IFRS 7 are designed to support the regulations for recognizing, measuring, and presenting financial assets and financial liabilities in IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement.

Scope

IFRS 7 applies to all financial instruments, except for

• Unless IAS 39 mandates its application, interests in subsidiaries, associates, and joint ventures are accounted for under IAS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements, and IAS 28 Investments in Associates and Joint Ventures.
• Employers' obligations and rights under employee benefit arrangements falling under the purview of IAS 19 Employee Benefits.
• The accounting treatment for insurance contracts is outlined in the International Financial Reporting Standards (IFRS) 4 Insurance Contracts. However, if an insurance contract contains embedded derivatives, the accounting treatment is governed by the International Financial Reporting Standards (IFRS) 7. This applies when the International Accounting Standards (IAS) 39 mandates separate accounting for these derivatives.
• Financial instruments, contracts, and obligations linked to share-based payment transactions are regulated by IFRS 2 Share-based Payment, except for contracts falling under paragraph 5-7 of IAS 39, which are subject to IFRS 7.
• Puttable instruments are required to be classified as equity instruments.

Additionally, the standard relevant to agreements for the purchase or sale of a non-monetary asset that fall under the jurisdiction of IAS 39.

Entities are required to disclose information under IFRS 7 that enables users to evaluate the significance of financial instruments on their financial performance and position.

IFRS 7 does not contain any provisions for recognition or measurement requirements.

Statement of financial position

The carrying amount of each of the following categories is disclosed either in the statement of financial position or in the notes:

• financial assets at fair value through profit or loss, showing separately:
  • those designated as such upon initial recognition, and
  • those classified as held for trading in accordance with IAS 39;

• held-to-maturity investments;

• loans and receivables;

• available-for-sale financial assets;

• financial liabilities at fair value through profit or loss, showing separately:
  • those designated as such upon initial recognition, and
  • those classified as held for trading in accordance with IAS 39; and

• financial liabilities measured at amortized cost.

Allowance account for credit losses

In cases where credit losses impact financial assets and the entity opts to record the impairment in a separate account, it is mandatory to disclose a reconciliation of the changes that took place in that account over a defined period. This disclosure should be presented for every category of financial assets, such as bad debt provisions.

Defaults and breaches

Details regarding defaults on loans payable at the end of the reporting period must be disclosed by the entity. This includes information on the carrying amount of the defaulted loan, whether the default was remedied or renegotiated prior to the authorization of the financial statements for issuance.

Statement of comprehensive income

The entity is required to disclose income, expenses, gains, or losses in either on the face of the financial statements or the accompanying notes:

• net gains or net losses on all financial instruments, separated into classes;
• total interest income and total interest expense for financial assets or financial liabilities that are not at fair value through profit or loss;
• fee income and expense from financial assets or financial liabilities that are not at fair value through profit or loss, and trust/fiduciary activities (holding or investing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions);
• interest income on impaired financial assets; and
• the amount of any impairment loss for each class of financial asset.