Transcript IFRS 7 Financial Instruments: Disclosures

International Financial Reporting Standards
IFRS 7 Financial
Instruments Disclosures
Joint World Bank and IFRS Foundation ‘train the
trainers’ workshop hosted by the ECCB
30 April to 4 May 2012
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation.
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Introduction
• IFRS 7 sets out disclosures of financial instruments
• The presentation, recognition and measurement of
financial instruments are the subjects of
• IAS 32 Financial Instruments: Presentation
• IAS 39 Financial Instruments: Recognition and
Measurement
• IFRS 9 Financial Instruments (being developed in
phases) is intended to ultimately replace IAS 39.
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Disclosure principles
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Information that enables users to evaluate the
significance of financial instruments for the entity’s
financial position and financial performance.
• Information (qualitative and quantitative) that enables
users 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.
• including information about how the entity manages
its exposure to those financial risks.
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Disclosure requirements
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• Qualitative information about exposure to risks arising
from financial instruments.
• The disclosures describe management’s objectives,
policies and processes for managing those risks
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Disclosure requirements continued
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• Quantitative information about exposure to risks arising
from financial instruments, including specified minimum
disclosures about
• credit risk,
• liquidity risk and
• market risk.
• These disclosures provide information about the extent
to which the entity is exposed to risk, based on
information provided internally to the entity’s key
management personnel.
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Comparison to the IFRS for SMEs
• The IFRS for SMEs requires less detailed
disclosure of financial instruments.
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Judgements and estimates
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• Qualitative and quantitative information to evaluate the
nature and extent of the entity’s exposure to and
management of risks arising from financial instruments,
including:
• amounts that best represent maximum exposure to
credit risk.
• sensitivity analysis for each type of market risk
showing how profit or loss and equity would have
been affected by changes in relevant variables that
are reasonably possible.
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Judgements and estimates continued
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• Fair value information is required to be provided for all
financial assets and liabilities (with limited exceptions)
irrespective of whether they are carried at FV.
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International Financial Reporting Standards
Offsetting
Financial Assets and
Financial Liabilities
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Disclosure requirements
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• Respond to comments:
• preparers: Cost-benefit – scope, class vs.
counterparty, existing disclosure requirements
• investors: Need for information about gross and net
exposures
• Provide information about exposures in normal course
and in times of stress
• Don’t reconcile IFRSs and US GAAP but allow entities
to be compared on a like basis
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Disclosure requirements continued
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• Proposed disclosure:
Gross
amounts
before
offsetting
Gross amounts
set off
Net amounts
presented
in balance
sheet
(C)
Other amounts
in scope but
not set off in
balance sheet
(D)
Net amounts
[depends on
offsetting model]
[depends on
offsetting model]
[same for
all preparers]
(B)
(E)
(A)
[same for
all preparers]
[depends on
offsetting
model]
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Example:
Disclosure
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Assume an entity has a recognised derivative asset with a fair
value of 100 and a recognised derivative liability with a fair value
of 80 that meet the criteria for offsetting. The entity has another
derivative liability with a fair value of 10 and cash collateral of 20
that do not meet the criteria for offsetting.
The financial assets would be disclosed as follows:
a.
Financial assets
b.
Gross carrying
Gross
amounts (before amounts
offsetting)
offset
c.
Net amount presented in
statement of financial
position
(a-b)
Category
Derivatives
100
(80)
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d.
e.
Amounts available to be offset (but Net exposure
not set off in stmt of financial
(c-d)
position)
(ie in bankruptcy or default)
Financial
instruments
(10)
Cash collateral
10
-
Example:
Disclosure continued
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Same example Assume an entity has a recognised derivative
asset with a fair value of 100 and a recognised derivative liability
with a fair value of 80 that meet the criteria for offsetting. The
entity has another derivative liability with a fair value of 10 and
cash collateral of 20 that do not meet the criteria for offsetting.
The financial liabilities would be disclosed as follows:
a.
Financial
liabilities
b.
Gross carrying
Gross
amounts (before amounts
offsetting)
offset
c.
Net amount presented in
statement of financial
position
(a-b)
Category
Derivatives
90
(80)
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d.
e.
Amounts available to be offset (but Net exposure
not set off in stmt of financial
(c-d)
position)
(ie in bankruptcy or default)
Financial
instruments
-
Cash collateral
10
-
Application guidance to IAS 32
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• Comments received highlighted inconsistencies in the
application of the offsetting requirements in IAS 32
• In December 2011, the IASB separately clarified the
application of the offsetting criteria in IAS 32:
– Legally enforceable right of set-off:
– The normal course of business;
– The event of default; and
– The event of insolvency or bankruptcy
– Some gross settlement systems are considered
equivalent to net settlement if they eliminate or result in
insignificant credit and liquidity risk and process
receivables and payables in a single settlement process
or cycle.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Questions or comments?
Expressions of individual
views by members of the
IASB and its staff are
encouraged. The views
expressed in this
presentation are those of the
presenter.
Official positions of the IASB
on accounting matters are
determined only after
extensive due process and
deliberation.
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The requirements are set out in International Financial
Reporting Standards (IFRSs), as issued by the IASB at
1 January 2012 with an effective date after 1 January
2012 but not the IFRSs they will replace.
The IFRS Foundation, the authors, the presenters and
the publishers do not accept responsibility for loss
caused to any person who acts or refrains from acting
in reliance on the material in this PowerPoint
presentation, whether such loss is caused by
negligence or otherwise.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org