Settlement options FOREIGN EXCHANGE

Chapter 20 – Financial Instruments Page 289 Disclosure requirements Loans and receivables so designated Financial liabilities so designated The maximum exposure to credit risk  The amount that any related financial instrument alleviates the entity’s exposure to credit risk  The amount of change, both during the period and cumulatively, in the fair value of the financial instrument that resulted from changes in credit risk.   The amount of change, both during the period and cumulatively, in the fair value of any related credit derivative or similar instrument.  The difference between the carrying amount and amount that the entity is contractually obliged to pay at maturity of the financial instrument. 

15.2.1 Derecognition

Where an entity is required by IAS 39 to continue to recognise a financial asset, even though it has entered into some arrangement to transfer it, a number of disclosures should be made for each class of financial asset so recognised. This information should include:  the nature of the assets, and the risks and rewards of ownership that the entity continues to be exposed to;  if the whole of the asset continues to be recognised by the entity, its carrying amount along with that of the associated liability; and  where part of the asset continues to be recognised, the total amount of the asset originally recognised, the amount recognised and the carrying amount of the associated liability.

15.2.2 Collateral

Where financial assets have been pledged as collateral for liabilities, or contingent liabilities, the carrying amount of the financial assets should be disclosed with any significant terms and conditions attaching to them.

15.2.3 Reclassification

Where a financial asset has been reclassified from fair value to one measured at cost or amortised cost or vice versa, an entity is required to disclose the amount that has been reclassified and the reason for the reclassification.

15.2.4 Defaults and breaches

Where an entity has defaulted on any amounts in relation to financial instruments for which the lender can demand repayment, the entity should disclose details of those breaches. This information should include disclosure of the amounts recognised in the statement of financial position in respect of such defaulted amounts and whether or not the default has been remedied or renegotiated. [IFRS 7.18]

15.2.5 Allowance account for credit losses

If a financial asset has become impaired by credit losses and the impairment has not been deducted from the carrying amount of the financial asset, the entity is required to provide a reconciliation of movements in the separate account where the credit losses were recorded. Chapter 20 – Financial Instruments Page 290

15.2.6 Multiple embedded derivatives

If an entity has issued a compound financial instrument i.e. where there is both a liability and an equity component that contains multiple embedded derivatives that are interdependent, then it should disclose the existence of such instruments.

15.3 Statement of comprehensive income

The disclosure requirements in relation to interest income and expense, gains and losses recognised on available-for-sale financial assets and impairment losses recognised on financial assets have been included in IFRS 7. These disclosures were previously included in IAS 32. IFRS 7 disclosures have been extended to show the net gains or losses on financial assets and liabilities by class, to complement the disclosures made in the statement of financial position regarding movements during the period. An entity should disclose the net gains or losses on the movement in financial assets and liabilities measured at fair value through profit or loss. These disclosures should be shown separately for financial instruments designated as such on their initial recognition and those that are classified as held for sale. Information should be disclosed to identify the total interest income and total interest expense for financial assets and liabilities that are not measured at fair value though profit or loss, amounts recognised in other comprehensive income for available-for-sale financial assets and the amount of interest income accrued on impaired financial assets. Any impairment losses recognised in profit or loss for each class of financial asset should be separately identified.

15.4 Other disclosures

An entity should fully explain the accounting policies that have been applied in recognising and measuring its financial instruments, including the entity’s policy on the use of hedge accounting and the techniques used for measuring fair value. The specific disclosure requirements that were originally set out in IAS 32 in relation to hedge accounting have been expanded to ensure that a full assessment can be made of the risks associated with such activities. The expanded disclosures specifically in relation to cash flow hedges include the periods over which the cash flows are expected to arise and consequently when they will impact profit or loss. A description of any transaction that is no longer being hedged and any ineffective proportion of a hedge that has been recognised as part of profit or loss for the period should also be disclosed. For fair value hedges, an entity should disclose both the gains and losses made on the hedging instrument and those on the hedged item itself. The disclosures made by an entity should meet the overall objective of providing more transparent information about the risks that exist in relation to its financial instruments and how it controls those risks. Although an entity should make sufficient disclosures to meet this overall objective, the IASB has included specific disclosures that are required to be made by an entity in relation to fair value.

15.4.1 Fair value

An entity should provide information on the fair value, at the end of each reporting period, of financial assets and financial liabilities analysed over their different classes. This information is required to be presented in a way that permits a comparison to be made between the fair values and the carrying amounts recognised in the statement of financial position.