Other Disclosures

3.3 Other Disclosures

3.3.1 Accounting Policies

IFRS 7 includes a reference to IAS 1, which requires an entity to disclose, in the summary of significant accounting policies, the measurement basis (or bases) used in preparing the financial statements and the other accounting policies used that are relevant to an understanding of the financial statements.

3.3.2 Hedge Accounting

3.3.2.1 Because hedge accounting is elective and subject to restrictive conditions under IAS 39, it is important that entities provide information about the extent to which they have applied hedge accounting and its effects on the financial statements in order to enable users to compare financial statements of different entities. IFRS 7 contains detailed disclosure requirements in this respect. An entity shall disclose separately for designated fair value hedges, cash flow hedges, and hedges of a net investment in a foreign operation

• A description of each type of hedge • A description of the financial instruments designated as hedging instruments and their fair

values at the reporting date • The nature of the risks being hedged

3.3.2.2 For cash flow hedges, an entity shall also disclose the periods in which the cash flows are expected to occur, when they are expected to enter into the determination of profit or loss, and a description of any forecast transaction for which hedge accounting had previously been used but which is no longer expected to occur.

3.3.2.3 When a gain or loss on a hedging instrument in a cash flow hedge has been recognized directly in equity, through the statement of changes in equity, an entity shall disclose

• The amount that was so recognized in equity during the period • The amount that was removed from equity and included in profit or loss for the period

Chapter 39 / Financial Instruments: Disclosures, (IFRS 7) 453

• The amount that was removed from equity during the period and included in the initial measurement of the acquisition cost or other carrying amount of a nonfinancial asset or nonfinancial liability in a hedged highly probable forecast transaction

3.3.2.4 An entity is also required to disclose • In fair value hedges, gains or losses on (a) the hedging instrument and (b) the hedged item

attributable to the hedged risk • The ineffectiveness recognized in profit or loss that arises from cash flow hedges • The ineffectiveness recognized in profit or loss that arises from hedges of net investments in

foreign operations

3.3.3 Fair Value

3.3.3.1 IFRS 7 requires an entity to disclose, for each class of financial assets and financial li- abilities, the fair value of that class of assets and liabilities. Disclosure of fair value shall be made in a way that permits the information to be compared with the corresponding carrying amount in

the balance sheet. Many users of financial statements consider fair value information useful, be- cause it provides a market-based assessment of the value of financial instruments that does not de- pend on the cost of the instruments when they were recognized initially by the entity or the cate- gory in which they were classified by the entity.

3.3.3.2 Fair value information is not required when the carrying amount is a reasonable approxi- mation to fair value. In addition, when investments in unquoted equity instruments or derivatives

linked to such equity instruments are measured at cost under IAS 39 because their fair value cannot

be measured reliably, that fact shall be disclosed together with a description of the financial in- struments, their carrying amount, an explanation of why fair value cannot be measured reliably, and, if possible, the range of estimates within which fair value is highly likely to lie. Disclosure of fair value is not required for such an instrument. Additionally, fair value information is not required for contracts containing a discretionary participation feature (as described in IFRS 4) if the fair value of that feature cannot be measured reliably.

3.3.3.3 To complement the fair value information provided, an entity shall also disclose (a) The methods and assumptions applied in determining fair values (e.g., the assumptions

relating to prepayment rates, rates of estimated credit losses, and interest rates or discount rates)

(b) Whether fair values are determined directly, in full or in part, by reference to published price quotations in an active market or are estimated using a valuation technique (c) Whether its financial statements include financial instruments measured at fair values that are determined in full or in part using a valuation technique based on assumptions that are not supported by observable current market transactions in the same instrument and not based on available observable market data, including information about the sensitivity of the fair value estimates to changes in assumptions

(d) The total amount of the change in fair value estimated using a valuation technique that was recognized in profit or loss during the period

3.3.3.4 If there is a difference between the transaction price fair value at initial recognition and the amount that would be determined at that date using a valuation technique, an entity also dis-

closes its accounting policy for recognizing that difference in profit or loss and the aggregate dif- ference yet to be recognized in profit or loss. Such differences may arise, for instance, for dealers in financial instruments.