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7 - Scope of IFRS 7

IFRS

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30 views2 pages

7 - Scope of IFRS 7

IFRS

Uploaded by

shaziln4200
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Scope of IFRS 7:

IFRS 7 applies to all entities that hold financial instruments, regardless of whether
they are recognized in the financial statements. It covers disclosures for:
 Financial assets
 Financial liabilities
 Equity instruments
 Derivatives
It also requires disclosures for items measured at fair value and those not measured
at fair value but that have a significant impact on the entity's financial risk profile.
Key Disclosure Requirements:
1. Qualitative Disclosures:
o Risk Management: Entities must disclose their objectives, policies,
and processes for managing financial risks. This includes descriptions
of the methods used to measure and control risks and the nature of
financial risks the entity faces, such as credit, liquidity, and market
risks.
2. Quantitative Disclosures:
o Credit Risk: Entities must provide information on credit risk exposure,
including the maximum exposure to credit risk, information about
credit quality, and collateral held as security.
o Liquidity Risk: Disclosures must include an analysis of financial
liabilities based on the remaining contractual maturities, indicating
how the company manages liquidity risk.
o Market Risk: Entities should disclose the sensitivity of their financial
instruments to changes in market factors such as interest rates,
currency exchange rates, and other price risks.
3. Fair Value Disclosures:
o Companies are required to disclose the fair value of financial
instruments, distinguishing between those measured at fair value
through profit or loss, those measured at amortized cost, and those
measured at fair value through other comprehensive income.
o The disclosures must also include the methods and valuation
techniques used to determine fair value, especially for instruments
where market prices are not available, requiring Level 1, 2, or 3 inputs
under the fair value hierarchy.
4. Hedge Accounting Disclosures:
o IFRS 7 requires disclosures for hedging activities, explaining how an
entity uses derivatives and other financial instruments to hedge risk.
This includes the types of hedges (fair value hedges, cash flow hedges,
or hedges of a net investment in a foreign operation), the nature of the
hedged risks, and the effectiveness of hedging strategies.
5. Offsetting Disclosures:
o Entities must disclose information on financial assets and financial
liabilities that are subject to enforceable master netting arrangements
or similar agreements. This provides clarity on the net exposure to
financial risks in situations where offsetting is applied.

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