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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Consolidated financial statements

IFRS 10 Definition of consolidated financial statements

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

ParentAn entity that controls one or more entities.

The other types of financial statements are unconsolidated financial statements (or company accounts) and combined financial statements.

Single economic entity concept

The concept of a single economic entity is illustrated in the example below:

Example – Single economic entity concept

A subsidiary buys an asset from a third party for CU 100. It subsequently sells the asset on to its parent for CU 130. The subsidiary records a profit

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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 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

Weather derivative accounting

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Weather derivative accounting – The weather has an enormous impact on business activities of many kinds and varies both geographically and seasonally. Sellers of weather derivatives use the instruments to hedge their own risks and to make trading profits. Just as a firm can manage its currency exposure, so it can hedge its weather exposure.

Contract concepts

A weather derivative is a contract between two parties that stipulates how payment will be exchanged between the parties, depending on certain meteorological conditions during the contract period. Weather derivatives are usually structured as swaps, futures and call or put options based on different underlying weather indices. Weather derivative accounting

Weather derivatives have one major difference from traditional derivatives. In … Read more

IFRS vs US GAAP Derivatives and hedging

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IFRS vs US GAAP Derivatives and hedging – Derivatives and hedging represent some of the more complex and nuanced topical areas within both US GAAP and IFRS. While IFRS generally is viewed as less rules-laden than US GAAP, the difference is less dramatic in relation to derivatives and hedging, wherein both frameworks embody a significant volume of detailed and complex guidance.

Derivatives and embedded derivatives

The definition of derivatives is broader under IFRS than under US GAAP; therefore, more instruments may be required to be accounted for as derivatives at fair value through the income statement under IFRS. There are also differences in the identification of embedded derivatives within both financial and nonfinancial host contracts that should … Read more

The IFRS 9 Framework for financial assets

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The IFRS 9 Framework for financial assets is a decision model

to help you go through decisions

with regard to

the classification and measurement of financial assets.

IFRS 9 recognises three different accounting policies for financial instruments. These principles determine the value of the financial instruments on the balance sheet. The IFRS 9 Framework for financial assets

The initial measurement is based on amortised costs, this is the amount for which an asset or liability is initially recognised in the balance sheet less principal repayments, plus or minus Read more

Derivative novation

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Derivative novation refers to the replacement of one party to a derivative instrument with a new party, whereby the original party transfers all rights and obligations to the latter party. In some situations, the derivative instrument that is the subject of the novation might be designated as the hedging instrument in a hedging relationship.

A novation is not considered a termination of the hedging instrument, but rather is a change in the counterparty to a derivative instrument. Therefore, when a novation occurs an entity is typically not required to discontinue the hedging relationship. Derivative novation

However, if a derivative instrument novation involves a new counterparty with creditworthiness different from that of the old counterparty, the entity should … Read more

The way to IFRS 9 Financial Instruments

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This is the way to IFRS 9 Financial Instruments, introducing the why? for this new IFRS standard. In July 2014 the International Accounting Standards Board (IASB) published the 4th and final version of IFRS 9 Financial Instruments.

The way to IFRS 9 Financial Instruments

This was the conclusion of a major project started in 2002 as part of the Norwalk Agreement (WIKI) between the IASB and US Financial Accounting Standards Board (FASB) as a long term reform of financial instrument accounting.

The project had been divided into three phases in order to allow a step by step approach. Once a phase was completed, the corresponding chapters were created in IFRS 9 and withdrawn from IAS … Read more