IFRS 7 Financial Disclosures Overview

1. IFRS 7 Financial
Instruments:
DISCLOSURES

2. PRESENTATION
AGENDA
OVERVIEW & OBJECTIVE OF IFRS 7
EXEMPTION FROM IFRS 7
DISCLOSURE REQUIREMENT BY IFRS 7
SIGNIFICANCE OF FINANCIAL INSTRUMENTS
NATURE & EXTENT OF RISKS
OTHER DISCLOSURES
IFRS 7 FINANCIAL
INSTRUMENTS:
DISCLOSURES
PRESENTATION OF DISCLOSURES

3. OVERVIEW
& OBJECTIVE: IFRS 7 FINANCIAL
INSTRUMENTS: DISCLOSURE
“
“
The standard IFRS 7 prescribes
the disclosure requirements
for ALL ENTITIES THAT HAVE
SOME FINANCIAL
INSTRUMENTS in their books.
The objective are to enable the users of financial
statements of an entity
 to realize THE SIGNIFICANCE OF THE
FINANCIAL INSTRUMENTS and
 to realize THE NATURE AND EXTENT OF RISK
arising from them and how the risks are
managed.
OBJECTIVE OF IFRS 7

4. EXEMPTION
FROM IFRS 7
Subsidiaries, Joint ventures, Associates
Insurance contracts
Employee benefit plans
Share-based payments
Equity instruments in line with IAS 32 *
There are some types of instruments that are EXEMPT
FROM IFRS 7 and an entity should provide disclosures in
line with other standards, such as:
*Here, own equity instruments are excluded, not the equity
instruments in other entities as these are financial assets

5. DISCLOSURE
REQUIREMENT by IFRS 7 FINANCIAL
INSTRUMENTS: DISCLOSURE
IFRS 7 requires certain disclosures
in 2 main areas:
SIGNIFICANCE of financial
instruments
NATURE AND EXTENT OF
RISKS from financial instruments
and how they are managed
IFRS 7 FINANCIAL
INSTRUMENTS: DISCLOSURE
SIGNIFICANCE of
financial instruments
NATURE OF RISK + RISK
MANAGEMENT
OBJECTIVE To provide disclosures about:

6. SIGNIFICANCE
of FINANCIAL INSTRUMENTS
Disclosures for the statement of
financial position
Disclosures for the statement of
comprehensive income
Other Disclosures
01
02
03
These disclosures are necessary to
understand whether the financial
instruments are SIGNIFICANT for
entity’s financial position and
performance.
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“

7. SIGNIFICANCE
of FINANCIAL INSTRUMENTS
DISCLOSURES FOR THE STATEMENT
OF FINANCIAL POSITION
Disclosures for the statement of
comprehensive income
Other Disclosures
01
02
03
Continued... Disclosures for the statement of
financial position:
CARRYING AMOUNTS of the financial instruments by their
categories
Financial assets or financial liabilities MEASURED AT FAIR
VALUE THROUGH PROFIT OR LOSS (FVTPL)
Investments in equity instruments designated at FAIR VALUE
THROUGH OTHER COMPREHENSIVE INCOME (FVOCI)
RECLASSIFICATIONS
OFFSETTING financial assets and financial liabilities
COLLATERALS
ALLOWANCE ACCOUNT for credit losses
COMPOUND FINANCIAL INSTRUMENTS with multiple
embedded derivatives
DEFAULT AND BREACHES

8. SIGNIFICANCE
of FINANCIAL INSTRUMENTS
Disclosures for the statement of
financial position
DISCLOSURES FOR THE STATEMENT
OF COMPREHENSIVE INCOME
Other Disclosures
01
02
03
Continued...
NET GAINS or NET LOSSES on each category of the
financial instruments
TOTAL INTEREST REVENUE and TOTAL
INTEREST EXPENSE
FEE INCOME and FEE EXPENSE
ANALYSIS OF THE GAIN OR LOSS in the statement
of comprehensive income from the
DE-RECOGNITION of financial assets at
AMORTIZED COST
Disclosures for the statement of
Comprehensive Income:
You should disclose the items of income, expense,
gains or losses (by categories), mainly:

9. SIGNIFICANCE
of FINANCIAL INSTRUMENTS
Disclosures for the statement of
financial position
Disclosures for the statement of
comprehensive income
OTHER DISCLOSURES
01
02
03
Continued...
ACCOUNTING POLICIES
HEDGE ACCOUNTING DISCLOSURES (risk
management strategies, effect of hedge accounting…)
FAIR VALUE (how it was determined, fair values of FA
and FL, explanations when the fair value cannot be
determined)
Other Disclosures:

10. NATURE &
EXTENT OF RISKS FROM FINANCIAL
INSTRUMENTS
This part of the disclosures is really
demanding, because it requires additional
analysis and work, especially for market risk
disclosures.
IFRS 7 requires qualitative and quantitative
disclosures for three main risks:
CREDIT RISK
LIQUIDITY RISK
MARKET RISK
RISK DISCLOSURES UNDER IFRS 7
CREDIT RISK
LIQUIDITY RISK
MARKET RISK Currency risk
Interest rate risk
Other price risk

11. NATURE &
EXTENT
For each type of risk, you should disclose:
Here, the entity would normally describe HOW THE
COMPANY IS EXPOSED TO THE RISKS, HOW THE
RISKS ARISE and HOW IT MANAGES THESE RISKS.
TYPE OF RISK
The entity needs to provide A SUMMARY OF
QUANTITATIVE DATA (NUMBERS) about the
exposures to the risk.
It’s a lot of details and IFRS 7 requires specific
quantitative disclosures for each type of risk
 QUALITATIVE
DISCLOSURES:
 QUANTITATIVE
DISCLOSURES:
OF RISKS FROM FINANCIAL
INSTRUMENTS

12. CREDIT
RISK
Credit risk management practices
Information about amounts arising from expected
credit losses
Credit risk exposure
Collateral and other credit enhancements obtained
DISCLOSURE ITEMS:
CREDIT RISK relates to financial assets and simply speaking, it is a risk that
one will suffer a financial loss due to COUNTERPARTY FAILING TO PAY ITS
OBLIGATIONS.
If an entity has trade receivables or provides loans, then it is exposed to credit
risk and it should focus on this part of the standard.
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“

13. CREDIT
RISK
Continued...
ILLUSTRATION OF QUANTITATIVE CREDIT RISK DISCLOSURE

14. LIQUIDITY
RISK
MATURITY ANALYSIS of financial liabilities with remaining
contractual maturities (separately for non-derivative and
derivative)
HOW an entity manages the liquidity risk
DISCLOSURE ITEMS/PRACTICES:
LIQUIDITY RISK relates to financial liabilities and it is a kind of “opposite” to
the credit risk.
It is the risk that the entity will not meet its obligations from financial
liabilities to be settled with cash or another financial asset.
“
“

15. LIQUIDITY
RISK
Continued...
ILLUSTRATION OF QUANTITATIVE LIQUIDITY RISK DISCLOSURE

16. MARKET
RISK
CURRENCY RISK: The risk that foreign
exchange rate changes cause the fluctuations
in cash flows or fair values
INTEREST RATE RISK: Fluctuations are
caused by the changes in interest rates
COMPONENTS OF MARKET RISK
MARKET RISK is the risk that either
the FAIR VALUE OR FUTURE CASH
FLOWS from your financial assets or
financial liabilities WILL
FLUCTUATE due to changes in
market prices.
“
“
OTHER PRICE RISK: Fluctuations are
caused by the changes in other market prices,
such as commodity prices, equity prices

17. MARKET
RISK
Continued...
The disclosures for market risk are quite demanding and
require some work, because you need to produce SENSITIVITY
ANALYSIS.
There are two types of sensitivity analysis and you can choose the one
that’s the best in your situation:
 “BASIC” SENSITIVITY ANALYSIS: Simulate The Changes In
Certain Variable (interest rate, foreign exchange rate, etc.) and
show how profit or loss and equity would have been affected.
 VALUE-AT-RISK ANALYSIS: Analyze Interdependencies
Between Variables, for example between interest rates and
exchange rates.

18. OTHER
DISCLOSURES
TRANSFERS OF FINANCIAL ASSETS
INFORMATION REQUIRED ON INITIAL
APPLICATION OF IFRS 9
Except for these 2 big groups of IFRS 7
disclosures (significance and nature of risk),
there is few more information required about:

19. PRESENTATION
of DISCLOSURES DISCLOSURES TO BE USEFUL FOR THE READERS, PLEASE BEAR A FEW RULES IN MIND:
Lots of disclosures are required by the CLASSES OF
FINANCIAL INSTRUMENTS (e.g. credit risk disclosures or
liquidity risk disclosures). CLASSES ARE NOT THE SAME AS
CATEGORIES of financial instruments and should group
financial instruments into classes according to judgment,
what’s the best for readers to understand. Also, no need to use
the same classes for different risks.
Provide the disclosures in an INTEGRATED PACKAGE. Thus,
ONE DISCLOSURE CAN SATISFY MORE REQUIREMENTS.
 CLASSES OF
FINANCIAL
INSTRUMENTS
 INTEGRATED
PACKAGE
 BALANCE
between the
LEVEL OF DETAIL
& MATERIALITY
Find the right BALANCE BETWEEN THE LEVEL OF
DETAIL AND MATERIALITY. Make sure to INCLUDE ALL
MATERIAL INFORMATION, but don’t include excessive
details about items not significant that much, because
otherwise the users will be confused and the disclosures
would be useless.

20. SUMMARY
CHART
IFRS 7 ANATOMY
SIGNIFICANCE OF FINANCIAL INSTRUMENTS NATURE & EXTENT OF RISKS ARISING FROM
FINANCIAL INSTRUMENTS
STATEMENT OF
FINANCIAL POSITION
OTHER
DISCLOSURES
STATEMENT OF
COMPREHENSIVE
INCOME
Financial Assets & Liabilities
at Fair Value
Reclassification
Transfer of financial assets
Offsetting
Collateral
Allowance account for credit
losses
Compound financial
instruments with multiple
embedded derivatives
Defaults & Breaches
Items of Incomes,
Expenses, Gains &
Losses
Accounting
Policies
Hedge
Accounting
Fair value
QUALITATIVE
DISCLOSURES
QUANTITATIVE
DISCLOSURES
Exposures to
risk
Objectives,
Policies &
Processes
Credit risk
Liquidity risk
Market risk
Currency Risk
Interest Rate Risk
Other Price Risk

21. THANK
YOU