International
Accounting standard(IAS) IFRS-7
What is the International financial reporting standards (IFRS-7)? Describes in details:
IFRS-7(International Financial Reporting Standard-7) is a standard issued by the International Accounting Standards Board (IASB) that focuses on financial instruments and disclosures related to their risks. It requires entities to disclose information about the significance of financial instruments in their financial statements, as well as the risks associated with them.
Key aspects of IFRS 7 include:
1.Disclosure of Financial Risk:
IFRS 7 requires entities to provide detailed disclosures about financial risks arising from financial instruments, including:
Credit risk:
The risk that a counter party will fail to fulfill its obligations.
Liquidity risk:
The risk that an entity will not be able to meet its financial obligations due to insufficient cash flow.
Market risk:
The risk of financial loss due to fluctuations in market prices (such as interest rates, foreign exchange rates, or commodity prices).
2.Risk Management Objectives and Policies:
Entities must disclose the objectives, policies, and processes used to manage these risks, including how risks are measured and managed.
Entities must also provide information on the hedging strategies used (if applicable), including details about hedging instruments and the type of risk being hedged.
3.Fair Value Disclosures:
IFRS 7 requires entities to disclose the fair value of financial instruments, even if they are not carried at fair value on the balance sheet. This helps users assess how financial instruments are valued.
Entities must also disclose the methods and assumptions used in determining fair value, including the fair value hierarchy (Level 1, 2, or 3) based on the availability and reliability of market data.
4.Credit Quality of Financial Assets:
Entities must disclose information about the credit quality of their financial assets, particularly for assets that are not measured at fair value, to help users assess the risk of default.
5.Collateral and Offsetting:
Information regarding the collateral held as security for financial assets and liabilities, and whether financial assets and liabilities are subject to offsetting arrangements, must also be disclosed.
6.Sensitivity Analysis:
IFRS 7 requires entities to disclose the effect of changes in market conditions, such as interest rates and exchange rates, on financial instruments. This is often presented as a sensitivity analysis that shows how a change in a key variable would affect the entity’s financial results.
In short, IFRS 7 aims to provide transparency in financial statements by requiring disclosures that help users understand the financial risks associated with an entity’s financial instruments. It ensures that users can assess the exposure to risks and how well the entity manages them.