IFRS 7 Financial instruments Disclosures High level summary

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Scope IFRS 7 Financial instruments Disclosures High level summary

IFRS 7 applies to all recognised and unrecognised financial instruments (including contracts to buy or sell non-financial assets) except:

  • Interests in subsidiaries, associates or joint ventures, where IAS 27/28 or IFRS 10/11 permit accounting in accordance with IAS 39/IFRS 9
  • Assets and liabilities resulting from IAS 19
  • Insurance contracts in accordance with IFRS 4 (excluding embedded derivatives in these contracts if IAS 39/IFRS 9 require separate accounting)
  • Financial instruments, contracts and obligations under IFRS 2, except contracts within the scope of IAS 39/IFRS 9
  • Puttable instruments (IAS 32.16A-D).

Disclosure requirements: Significance of financial instruments in terms of the financial position and performance

Statement of financial

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High level overview IFRS 9 Hedge accounting

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High level overview IFRS 9 Hedge accounting


The objective of hedge accounting is to represent, in the financial statements, the effect of an entity’s risk management activities that use financial instruments to manage exposures arising from particular risks that could affect profit or loss (or other comprehensive income, in the case of investments in equity instruments for which an entity has elected to present changes in fair value in other comprehensive income).


A hedging relationship qualifies for hedge accounting only if all the following criteria are met:

  1. the hedging relationship consists only of eligible hedging instruments and eligible hedged items.
  2. at the inception of the hedging relationship there is formal designation and documentation
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How to best account for COVID-19 under IAS 10

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How to best account for COVID-19 under IAS 10 Events after the reporting period? The question is whether the COVID-19 crises is an adjusting event of a non-adjusting event for the Financial Statements for the period ended 31 December 2019 that have not been authorised for final distribution to stakeholders or for filing at a chamber of commerce or similar institute.

If it is a non-adjusting event what disclosures does it still require in the financial statements or management report accompanying these financial statements?

In terms of accounting implications, the current consensus is that an entity shall not adjust the amounts recognized in its financial statements (IAS 10 10 Non-adjusting events) as at 31 December … Read more

11 Best fair value measurements under IFRS 13

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11 Best fair value measurements under IFRS 13 – Several IFRS standards provide guidance regarding the scope and application of the fair value option for assets and liabilities. Here they are from 1 to 11…….

1 Investments in associates and joint ventures

Investments held by venture capital organizations and the like are exempt from IAS 28’s requirements only when they are measured at fair value through profit or loss in accordance with IFRS 9. Changes in the fair value of such investments are recognized in profit or loss in the period of change.

The IASB acknowledged that fair value information is often readily available in venture capital organizations and entities in similar industries, even for start-up and … Read more

IFRS 7 Other price risks Step-by-step

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IFRS 7 Other price risks Step-by-step – Other price risks is part of the risk disclosures requirements under IFRS 7 Financial Instruments: Disclosures. Other price risks is part of market risk (the other main market risk categories being currency risk and interest rate risk) and is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer or by factors affecting all similar financial instruments traded in the market. IFRS 7 Other price risks Step-by-step

Management … Read more

IFRS 7 Comprehensive Risk disclosures

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IFRS 7 Comprehensive Risk disclosures – Management should disclose information that enables users of its financial statements 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 [IFRS 7 31]. IFRS 7 Comprehensive Risk disclosures

IFRS 7 requires certain disclosures to be presented by category of an instrument based on the IFRS 9 recognition and measurement categories of financial instruments (previously the IAS 39 measurement categories). IFRS 7 Comprehensive Risk disclosures

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 … Read more

IFRS 3 Fair value of contingent consideration

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IFRS 3 Fair value of contingent consideration – Contingent consideration often involves the buyer transferring additional consideration to the seller if certain performance targets are met in the future. This allows the buyer to share the risk associated with the future of the business with the seller by making some of the consideration contingent on future performance. What factors should be considered in determining the fair value of this type of arrangement? IFRS 3 Fair value of contingent consideration

Valuation methods for contingent consideration range from discounted cash flow analyses to more complex Monte Carlo simulations. The terms of the arrangement and the payout structure will influence the type of valuation model the acquirer uses. IFRS 3 Read more

IFRS 13 Fair value non-performance risks

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IFRS 13 Fair value non-performance risks – One of the key challenges for many reporting entities in estimating fair value in accordance with the fair value standards has been determining and incorporating the impact of non-performance risk, including credit risk, into the fair value measurement. Non-performance risk is the risk that an entity will not perform on its obligation. This risk should be incorporated into a fair value measurement using a market-based estimate that follows the framework of the fair value standards and should be measured from the perspective of a market participant. The concept of non-performance risk incorporates credit risk and other risk factors, including regulatory, operational, and commercial risks.

Credit risk is often the largest … Read more

Low credit risk

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Low credit risk, in the context of IFRS 9, is an indicator assigned to financial instruments deemed to

  • have low default risk, that is a low likelihood of any credit event
  • the borrower has a strong capacity to meet contractual cash flow obligations both in the near term.

It is an important and practical definition in IFRS 9 to minimise the accounting for impairments on financial assets for all IFRS reporting entities.

The instrument must be considered to have lower credit risk from a market participant’s perspective. For low risk credit instruments, it is assumed that credit risk has not increased significantly at each reporting date. This means that only 12 month expected credit losses will be … Read more