IFRS 7 Financial Instruments: Disclosures

Transcription

1 IFRS 7 Financial Instruments: Disclosures

2 Overview Standard looks at disclosures of: Significance of Financial Instruments for financial position and performance Statement of Financial Position Statement of Comprehensive Income Other disclosures Nature and extent of risks arising from financial instruments Credit risk Liquidity risk Market risk

3 Significance of Financial Instruments An entity shall disclose information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance.

4 Significance: Statement of Financial Position Disclose categories of Financial Assets & Financial Liabilities (face or notes): Assets at Fair Value through P/L, distinguishing between: Designated Held for trading Loans & Receivables Held to Maturity Available-For-Sale Liabilities at Fair Value through P/L, distinguishing between: Designated Held for trading Financial Liabilities at amortised cost

5 Example Vodacom Group Limited Investec Limited

6 Reclassification: If there has been a reclassification between: Cost / Amortised Cost Fair Value Disclose: Amount reclassified Reason for reclassification

7 SFP: FV through Profit or Loss If designated Financial Liability at Fair Value: Amount of change in fair value attributable to change in credit risk Difference between: Carrying amount of liability; AND The amount the entity would contractually be required to pay at maturity

8 SFP: Collateral Disclose the usual : Carrying amount of any asset pledged as collateral Terms & conditions of the pledge Plus, Where entity holds collateral and is permitted to resell in the absence of default by the owner: Fair Value of collateral held Terms and conditions associated with its use of the collateral

9 Example Eskom Holdings Limited Investec Limited

10 SFP: Allowance for credit losses Impairment can be recorded by: Reducing the value of the debtor Creating an allowance account (bad debt provision ) Where an allowance account is used, disclose: Reconciliation of changes in that account for each class of financial asset

11 Example Eskom Holdings Vodacom Group

12 SFP: Defaults & Breaches For loans payable, disclose: Details of any defaults, interest & capital Carrying amount of loans in default at reporting date If defaulted during the period and remedied by reporting date DISCLOSE FACT

13 Significance: Comprehensive income Disclose either on face or in notes: Net gains or losses on: Financial assets/liabilities at FV through Profit or Loss, showing movements separately for: Those designated at Fair Value; AND Held for trading Available-For-Sale assets showing separately: Fair Value movements recognised in equity Amounts removed from equity and recognised in the Profit or Loss Held to Maturity assets Loans & Receivables; and Financial liabilities at amortised cost

14 Comprehensive income Disclose either on face or in notes: Total interest income and expense for Financial Instruments not at Fair Value; Fee income & expenses arising from: Assets/liabilities not at Fair Value through Profit or Loss Trust/other fiduciary activities Interest income on impaired financial assets; and Amount of any impairment loss for each class of financial asset

15 Example Investec Limited

16 Other disclosures: Hedge Accounting For each type of hedge (Fair Value / Cash Flow / Net Investment in a Foreign Operation): Description of each type of hedge Description of financial instruments designated as hedging instruments and their Fair Values Nature of risks being hedged

17 Other disclosures: Fair Value Disclose Fair Value of each class of financial asset and liability except where: Carrying Value approximates Fair Value (e.g.: Receivables) Measured at cost under IAS 39 as Fair Value cannot be reliably determined

18 Example Vodacom Limited Investec Limited

19 Other disclosures: Fair Value Where valuation technique was used disclose: Methods and techniques for each class of asset/ liability e.g.: assumptions on repayment rates, discount rates, interest rates, credit losses, etc. Whether Fair Value was determined in part or whole with reference to a published market price Whether Fair Value was based on observable market data or not and any Fair Value movements recognised on this basis in the income statement

20 Other disclosures: Fair Value Where Fair Value is not disclosed, for example where Fair Value cannot be reliably determined, must disclose: Fact that fair value has not been given as cannot be reliably determined Reason why they can t be fair valued Information about the market for such instruments Whether and how the entity intends to dispose of them Any gains/losses on such instruments that were sold or derecognised

21 Example Eskom Holdings Investec Limited

22 Nature & Extent of risks arising from Financial Instruments An entity shall 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 reporting date Typically, but not limited to: Credit risk Liquidity risk Market risk

23 Qualitative Disclosures For each type of risk, disclose: Exposures to risk and how they arise Objectives, policies and processes for managing risk and the methods used to measure the risk; and Any changes in the above from period to period

24 Quantitative Disclosures For each type of risk, disclose: Summary quantitative data about exposure to risk as provided to key management personnel (IAS 24) Specific disclosures (detailed below) Concentrations of risks If the disclosure is not representative of the entity s risk during the period, the entity shall provide further information on the exposure

25 Quantitative Disclosures: Credit Risk Disclose by class of financial instrument: Maximum credit exposure without taking into account any collateral or other credit enhancements Description of any collateral or credit enhancements Information on credit quality of financial assets that are NEITHER past due NOR impaired Carrying amount of financial assets where terms have been renegotiated

26 Example Eskom Holdings

27 Quantitative Disclosures: Credit Risk For assets past due OR impaired: Analysis of age of assets past due but not impaired Analysis of financial assets that are individually determined to be impaired and conditions supporting that assessment Any collateral or credit enhancements on amounts detailed above and Fair Value

28 Example Eskom Holdings

29 Quantitative Disclosures: Liquidity Risk Maturity analysis for financial liabilities that shows the remaining contractual maturities; and A description of how it manages the liquidity risk inherent in the analysis above

30 Example Nampak

31 Liquidity Risk Disclosures Definition of Liquidity Risk amended to include only financial liabilities that are settled in cash or another financial asset Liabilities settled in the entity s own equity are EXCLUDED

32 Liquidity Risk Disclosures (cont) Financial liabilities that include embedded derivatives are NOT separated for the purpose of the analysis Entire instrument treated as non-derivative liability

33 Liquidity Risk Disclosures (cont) Maturity Analysis disclosures extended: Non-derivatives: required to show the remaining contractual maturities Derivative Financial Liabilities: required to include remaining contractual maturities where these are essential for the understanding of the timing of cash flows e.g.: Interest rate swaps in a cash flow hedge

34 Liquidity Risk Disclosures (cont) IFRS 7 now requires an entity to disclose how the data was determined enhancing the relationship between qualitative and quantitative disclosures Also disclose where cash flows: could occur significantly earlier than indicated; or Where amounts could be significantly different

35 Quantitative Disclosures: Market Risk A sensitivity analysis for each type of market risk to which the entity is exposed showing how profit or loss and equity would have been affected by changes in the relevant risk variable Methods and assumptions used in preparing the sensitivity analysis Changes in methods/assumptions from previous periods, and reasons for the change

36 Example AngloGold Ashanti

37 New disclosure requirements On derecognition of financial assets Issued in October 2010 as an amendment to IFRS 7 Big project on derecognition was postponed So disclosures amended as interim measure Converges with US GAAP disclosures

38 Amendments Amendments intended to provide greater transparency around risk exposures where a financial asset is transferred but the entity retains some level of continuing involvement Anti-window dressing disclosures around transactions that are not evenly distributed i.e.: all occur near year end

39 Has there been a transfer of a financial asset? YES Was the asset derecognised in its entirety? NO NO YES Not subject to IFRS 7 amendments NO Did the transferor retain any continuing involvement in the transferred asset? Provide disclosures in 7.42D for each class of transferred financial assets that are not derecognised in their entirety YES Provide disclosures in 7.42E for each type of continuing involvement

40 7.42D Required Disclosures the nature of the assets; the nature of the risks and rewards of ownership to which the entity is exposed; a description of the nature of the relationship between the assets and the associated liabilities, including any restrictions arising from the transfer on the entity s use of the transferred assets; when the counterparty to the associated liabilities has recourse only to the transferred assets, a schedule that sets out the fair value of the transferred assets, the fair value of the associated liabilities and the net position;

41 7.42D Required Disclosures (cont) when the entity continues to recognise all of the transferred assets, the carrying amounts of the transferred assets and of the associated liabilities; and when the entity continues to recognise the assets to the extent of its continuing involvement, the total carrying amount of the original assets before the transfer, the carrying amount of the assets that the entity continues to recognise, and the carrying amount of the associated liabilities.

42 Illustrative disclosure (par. 42D)

43 Has there been a transfer of a financial asset? YES Was the asset derecognised in its entirety? NO NO YES Not subject to IFRS 7 amendments NO Did the transferor retain any continuing involvement in the transferred asset? Provide disclosures in 7.42D for each class of transferred financial assets that are not derecognised in their entirety YES Provide disclosures in 7.42E for each type of continuing involvement

44 7.42E Required Disclosures An entity is required to disclose information at the reporting date for each class of continuing involvement (aggregating its continuing involvement into types representative of the exposure to risks) including: the carrying amounts and fair values of the assets and liabilities that represent the entity s continuing involvement in the derecognised financial assets; the maximum exposure to loss from continuing involvement;

45 7.42E Required Disclosures (cont) the undiscounted cash flows that would or may be required to repurchase derecognised financial assets along with a maturity analysis of those cash flows; any gain or loss recognised at the date of the transfer of the assets; any income and expenses recognised in the reporting period from the entity s continuing involvement in the derecognised financial assets; and qualitative information that explains and supports the quantitative disclosures.

46 Illustrative disclosure (par. 42E)

47 Illustrative disclosure (par. 42E)

48 Additional disclosure NOTE that where transfers that qualify for derecognition are not evenly distributed throughout the reporting period, an entity is required to disclose: when in the reporting period the greater transfer activity took place, the amounts (e.g. related gains or losses) recognised and the total transfer proceeds from the transfer activity during that part of the reporting period.