(Summary) Ind AS 107

Financial Instruments: Disclosures

is to require entities to provide disclosures in their FS that enable users to evaluate:

  1. The significance of financial instruments for the entity’s financial position and performance; and
  2. 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
  • Exceptions to the scope: This Ind AS shall be applied by all entities to all types of financial instruments, except
    1. Those interests in subsidiaries, associates or JV
    2. Employers’ rights and obligations arising from employee benefit plans.
    3. Insurance contracts.
    4. Financial instruments, contracts and obligations under share-based payment transactions.
    5. Instruments that are required to be classified as equity instruments.
  •  Application:
    • Applies to Recognised and Unrecognised financial instruments
    • Recognised = Financial instruments that are within the scope of Ind AS 109
    • Unrecognised = Financial instruments outside the scope of Ind AS 109, but within the scope of this Ind AS.

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.

Information about the significance of financial instruments:

  1. Balance sheet:
    • Disclose the significance of financial instruments for an entity’s financial position and performance. This includes disclosures for each of the following categories:
      • financial assets & liabilities measured at FVTPL, showing separately those held for trading and those designated at initial recognition.
      • financial assets & liabilities measured at amortised cost.
  2. Statement of profit or loss:
    • Items of income, expense, gains, and losses, with separate disclosure of gains and losses from:
      • financial assets & liabilities measured at FVTPL, showing separately those held for trading and those designated at initial recognition.
      • financial assets & liabilities measured at amortised cost.
    • Other key disclosures:

The fair value hierarchy based on the lowest level of input significant to the overall fair value:

Level 1 – quoted prices for similar instruments

Level 2 – directly observable market inputs other than Level 1 inputs

Level 3 – inputs not based on observable market data

Nature and extent of exposure to risks arising from financial instruments:

Disclose information that enables users of FS to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period.

  1. Qualitative disclosures – The qualitative disclosures describe:
    • risk exposures for each type of financial instrument
    • management’s objectives, policies, and processes for managing those risks
    • changes from the prior period
  2. Quantitative disclosures – 
  • 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 KMP. These disclosures include:
    • summary quantitative data about exposure to each risk at the reporting date
    • disclosures about credit risk, liquidity risk, and market risk and how these risks are managed as further described below
    • concentrations of risk
  • Credit risk:
    • Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
    • Disclosures about credit risk include:
      • maximum amount of exposure (before deducting the value of collateral), description of collateral.
      • information about collateral or other credit enhancements obtained or called.
  • Liquidity risk:
    • Liquidity risk is the risk that an entity will have difficulties in paying its financial liabilities.
    • Disclosures about liquidity risk include:
      • a maturity analysis of financial liabilities
      • description of approach to risk management
  • Market risk:
    • Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
    • Disclosures about market risk include:
      • A sensitivity analysis of each type of market risk to which the entity is exposed
      • If an entity prepares a sensitivity analysis such as value-at-risk that reflects interdependencies of market risk, it may disclose that analysis instead of a separate sensitivity analysis for each type of market risk
      • Additional information if the sensitivity analysis is not representative of the entity’s risk exposure.

Transfers of financial assets:

Disclose information that enables users of its FS:

  • to understand the relationship between transferred financial assets that are not derecognised in their entirety and the associated liabilities; and
  • to evaluate the nature of, and risks associated with, the entity’s continuing involvement in derecognised financial assets.

 

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