IAS 36 How Impairment test

IAS 36 How Impairment test is all about this – When looking at the step-by-step IAS 36 impairment approach it comes down to the following broadly organised steps: IAS 36 How Impairment test

  • What?? – Determining the scope and structure of the impairment review, explained here,
  • If and when? – Determining if and when a quantitative impairment test is necessary, explained here,
  • IAS 36 How Impairment test or understanding the mechanics of the impairment test and how to recognise or reverse any impairment loss, if necessary. Which is explained in this section…

The objective of IAS 36 Impairment of assets is to outline the procedures that an entity applies to ensure that its assets’ carrying values are not … Read more

IFRS 7 Interest rate risk disclosure example

IFRS 7 Interest rate risk disclosure example – Interest rate risk is part of the risk disclosures requirements under IFRS 7 Financial Instruments: Disclosures. Interest rate risk is part of market risk (the other market risks being currency risk and other price 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 interest rates. IFRS 7 Interest rate risk disclosure example

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]. The disclosures … Read more

IFRS 7 Financial instruments Disclosures High level summary

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 position

Statement of

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Derivative

IFRS 9 Definition of derivative: A financial instrument or other contract within the scope of IFRS 9 with all three of the following characteristics.......

Currency risk

Currency risk - The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

IFRS 7 Market risk disclosures

Market risk - The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.

Notes to the financial statements

Notes to the financial statements that contain information in addition to the statement of financial position, of financial performance, of changes in equity

Cash Flow Risk Management

Cash Flow Risk Management The risk that companies must identify and manage is their cash flow risk, meaning uncertainty about their future cash flows. Finance theory is, for the most part, silent about how much cash flow risk a company should take on. Company Cash Flow Risk Management

In practice, however, managers need to be aware that calculating expected cash flows can obscure material risks capable of jeopardizing their business when they are deciding how much cash flow risk to accept. They also need to manage any risks affecting cash flows that investors are unable to mitigate for themselves. Company Cash Flow Risk Management

Deciding how much cash flow risk to take on what should companies look out for? Consider … Read more

Sensitivity analysis to market risk

Sensitivity analysis to market risk – Companies are required to report both qualitatively and quantitatively on their risk management strategies and the internal metrics they use for the calculation and management of risk arising from financial instruments. Sensitivity analysis is a kind of stress test (banking term) with less radical assumptions.

 

IFRS 7 breaks down the risk arising from financial instruments into three broad categories: market risk, credit risk and liquidity risk.

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the company’s income or the value of its financial instruments. Example disclosures are as follows:

IFRS Link

Explanation Sensitivity analysis to market risk

IFRS 17 128

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