Financial Instruments As Per IFRS 7


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Financial Instruments As Per IFRS 7
Financial Instruments As Per IFRS 7



Back in 2015, IFRS financial statements were required since a lot of loans were being taken by various entities from foreign banks. It is evident if you review the financial statement of even a mid-sized business that extends consumer loans. Foreign banks usually ask the bigger debtors to share their financial statements yearly.

It is possible that while checking the financial statement notes of a company, the numbers may add up, and everything may look balanced, nice, and clean. Still, there is a possibility that something might be out of place. For example, despite having everything in place, a company may not present sufficient notes regarding the financial instruments like loans given or taken apart from a break-up of the carrying amounts. Therefore, although it might be strange, IFRS 9 Financial Instruments may not require any disclosures. The reason is that IFRS 9 is too bulky and complex. Therefore, standard setters have voted in favour of a different standard regarding the disclosure requirements. Thus, IFRS 7 Financial Instruments came into existence.

At times, entities find it difficult to understand that things do not end up with IFRS 9 alone. Therefore, it is necessary to consider maturity analysis, sensitivity analysis, credit loss analysis, descriptions, and other things. It is better to understand the disclosures required by IFRS 7 so that you have a good idea of the additional work required apart from the accounting records. It is worth noting that one should be familiar with IFRS 7 as well since the standard applies to everyone dealing with financial instruments. There is no room for any exception.

Who Should Be Concerned About IFRS 7 Financial Instruments Disclosures

According to the standards IFRS 7, the disclosure requirements apply to everyone with some financial instrument. It replaced the old IAS 30 Disclosures found in the financial statements of banks and financial institutions. IAS 30 applied only to banks and financial institutions. However, IFRS 7 applies to everybody. So, even if it is a trading company having a few loans but quite a few trade receivables, IFRS still applies it must be aware of what it is so that it is clear what things should be included in the notes of the financial statement.

There are a few instruments that are not part of the IFRS 7. Also, it is required to provide disclosure as per the other standards like:

●  Associates.

●  Joint Ventures.

●  Subsidiaries.

●  Insurance Contracts.

●  Employee Benefit Plans.

●  Share-based Payments.

●  Equity Instruments.

Disclosures Necessary For IFRS 7

There are two main areas of the disclosures:

●  Importance of the financial instrument.

●  Nature and extent of risks from financial instruments and the ways to manage these.

Importance of the financial instrument:

These are necessary to have an understanding of whether the financial instruments are significant for the performance and financial position of an entity or not. These have been divided into a few sub-groups that are as follows:

●  Disclosure of financial position statement.

●  Disclosure of comprehensive income statement.

●  Other disclosures.

Nature and extent of risks from financial instruments:

This part is quite demanding and requires additional work and analysis, especially for market risk disclosures. As per IFRS 7, there must be both qualitative and quantitative disclosures, namely:

● Credit Risk.

● Liquidity Risk.

● Market Risk.

Hope it is clear now that IFRS 7 requires some mandatory information. Therefore, if you are looking to make the disclosure look useful, you have to follow the basics and include the mandatory details.