Overview of Ind AS 107 Financial Instruments Disclosures
The objective of the Ind AS 107 is to require entities to provide disclosures in their financial statements that enable users to evaluate:
(a) the significance of financial instruments for the entity’s financial position and performance; and
(b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks.
The qualitative disclosures describe management’s objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity’s key management personnel. Together, these disclosures provide an overview of the entity’s use of financial instruments and the exposures to risks they create.
The Ind AS applies to all entities, including entities that have few financial instruments (e.g., a manufacturer whose only financial instruments are accounts receivable and accounts payable) and those that have many financial instruments (e.g., a financial institution most of whose assets and liabilities are financial instruments).
When this Ind AS requires disclosures by class of financial instrument, an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. An entity shall provide sufficient information to permit reconciliation to the line items presented in the statement of financial position.
The principles in this Ind AS complement the principles for recognising, measuring and presenting financial assets and financial liabilities in Ind AS 32, Financial Instruments: Presentation and Ind AS 109, Financial Instruments.
Disclosures in Balance Sheet
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.
The carrying amounts of each of the following, shall be disclosed either in the balance sheet or in the notes:
(a) financial assets measured at fair value through profit or loss’
(b) financial liabilities at fair value through profit or loss’
(c) financial assets measured at amortised cost’
(d) financial liabilities measured at amortised cost’
(e) financial assets measured at fair value through other comprehensive income.
If in the current or previous reporting periods an entity reclassifies any financial asset, then it shall disclose:
(a) the date of reclassification,
(b) a detailed explanation of the change in business model and a qualitative description of its effect on the entity’s financial statements, and
(c) the amount reclassified into and out of each category.
An entity shall disclose:
(a) the carrying amount of financial assets it has pledged as collateral for liabilities or contingent liabilities; and
(b) the terms and conditions relating to its pledge.
When an entity holds collateral (of financial or non-financial assets) and is permitted to sell or repledge the collateral in the absence of default by the owner of the collateral, it shall disclose:
(a) the fair value of the collateral held;
(b) the fair value of any such collateral sold or repledged, and whether the entity has an obligation to return it; and
(c) the terms and conditions associated with its use of the collateral.
For loans payable recognised at the end of the reporting period, an entity shall disclose:
(a) details of any defaults during the period of principal, interest, sinking fund, or redemption terms of those loans payable;
(b) the carrying amount of the loans payable in default at the end of the reporting period; and
(c) whether the default was remedied, or the terms of the loans payable were renegotiated, before the financial statements were approved for issue.
Disclosures in Statement of profit and loss
An entity shall disclose the following items of income, expense, gains or losses either in the statement of profit and loss or in the notes:
(a) net gains or net losses on:
(i) financial assets or financial liabilities measured at fair value through profit or loss.
(ii) financial liabilities measured at amortised cost.
(iii) financial assets measured at amortised cost.
(iv) investments in equity instruments designated at fair value through other comprehensive income.
(v) financial assets measured at fair value through other comprehensive income.
(b) total interest revenue and total interest expense (calculated using the effective interest method) for financial assets that are measured at amortised cost or that are measured at fair value through other comprehensive income (showing these amounts separately); or financial liabilities that are not measured at fair value through profit or loss.
(c) fee income and expense (other than amounts included in determining the effective interest rate) arising from:
(i) financial assets and financial liabilities that are not at fair value through profit or loss; and
(ii) trust and other fiduciary activities that result in the holding or investing of assets on behalf of individuals, trusts, retirement benefit plans, and other institutions.
An entity shall disclose an analysis of the gain or loss recognised in the statement of profit and loss arising from the derecognition of financial assets measured at amortised cost, showing separately gains and losses arising from derecognition of those financial assets. This disclosure shall include the reasons for derecognising those financial assets.
An entity following hedge accounting shall provide information about:
(a) an entity’s risk management strategy and how it is applied to manage risk;
(b) how the entity’s hedging activities may affect the amount, timing and uncertainty of its future cash flows; and
(c) the effect that hedge accounting has had on the entity’s balance sheet, statement of profit and loss and statement of changes in equity.
An entity shall disclose the fair value of that class of assets and liabilities in a way that permits it to be compared with its carrying amount for each class of financial assets and financial liabilities.
Nature and 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 the end of the reporting period.
For each type of risk arising from financial instruments, an entity shall disclose:
(a) the exposures to risk and how they arise;
(b) its objectives, policies and processes for managing the risk and the methods used to measure the risk; and
(c) any changes in the above from the previous period.
For each type of risk arising from financial instruments, an entity shall disclose:
(a) summary quantitative data about its exposure to that risk at the end of the reporting period.
(b) the disclosures required by paragraphs 36–42 of this standard, to the extent not provided in accordance with (a).
(c) concentrations of risk if not apparent from the disclosures made in accordance with (a) and (b).
Credit risk disclosures:
(a) information about an entity’s credit risk management practices and how they relate to the recognition and measurement of expected credit losses, including the methods, assumptions and information used to measure expected credit losses;
(b) quantitative and qualitative information that allows users of financial statements to evaluate the amounts in the financial statements arising from expected credit losses, including changes in the amount of expected credit losses and the reasons for those changes; and
(c) information about an entity’s credit risk exposure (ie the credit risk inherent in an entity’s financial assets and commitments to extend credit) including significant credit risk concentrations.
Liquidity risk disclosures:
(a) a maturity analysis for non-derivative financial liabilities (including issued financial guarantee contracts) that shows the remaining contractual maturities.
(b) a maturity analysis for derivative financial liabilities. The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows (see paragraph B11B).
(c) a description of how it manages the liquidity risk inherent in (a) and (b).
Market risk disclosures:
(a) a sensitivity analysis for each type of market risk to which the entity is exposed at the end of the reporting period, showing how profit or loss and equity would have been affected by changes in the relevant risk variable that were reasonably possible at that date;
(b) the methods and assumptions used in preparing the sensitivity analysis; and
(c) changes from the previous period in the methods and assumptions used, and the reasons for such changes.