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2. 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
3. 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
4. The total amount of the change in fair value estimated using a valuation technique that was recognized in profit or loss during the period
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 discloses its accounting policy for recognizing that difference in profit or loss and the aggregate difference yet to be recognized in profit or loss. Such
differences may arise, for instance, for dealers in financial instruments.
NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS
The second of the two principal objectives of IFRS 7 is to require entities to 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 reporting date. These disclosure requirements focus on the risks that arise
from financial instruments (including credit risk, liquidity risk, and market risk) and how they have been managed by an entity. The extent of disclosure depends on the
extent of the entity’s exposure to risks arising from financial instruments.
Qualitative Disclosures
For each type of risk arising from financial instruments, IFRS 7 requires an entity to disclose qualitative information about
• The exposures to risk and how they arise
• The entity’s objectives, policies, and processes for managing the risk, and its methods to measure the risk
• Any changes from the previous period in the exposures or its objectives, policies, processes, and methods
Quantitative Disclosures
For each type of risk arising from financial instruments, IFRS 7 requires an entity to disclose
• Summary quantitative data about its exposure to that risk at the reporting date
• Concentrations of risk
IFRS 7 requires the disclosure about an entity’s exposure to risks to be based on how the entity views and manages its risks (i.e., the information that it uses
internally to assess risks).
If the quantitative data disclosed as of the reporting date are unrepresentative of an entity’s exposure to risk during the period, an entity shall provide further
information that is representative.
Credit risk. IFRS 7 defines “credit risk” as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an
obligation.
IFRS 7 requires these credit risk – related disclosures by class of financial instrument:
• The amount that best represents its maximum exposure to credit risk at the reporting date without taking account of any collateral held or other credit
enhancements (i.e., in many cases, the carrying amount)
• A description of collateral held as security and other credit enhancements
• Information about the credit quality of financial assets that are neither past due nor impaired
• The carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated
To complement the above information, IFRS 7 also requires disclosure of
• An analysis of the age of financial assets that are past due as of the reporting date but not impaired
• An analysis of financial assets that are individually determined to be impaired as of the reporting date
• A description of collateral held by the entity as security and other credit enhancements associated with past due or impaired assets
• The nature and carrying amount of financial or nonfinancial assets obtained during the period by taking possession of collateral or through guarantees or other
credit enhancements as well as policies for disposing of or using such assets that are not readily convertible to cash
Credit risk information helps users of financial statements assess the credit quality of the entity’s financial assets and level and sources of impairment losses.
Liquidity risk. IFRS 7 defines “liquidity risk” as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
IFRS 7 requires an entity to disclose both
• A maturity analysis for financial liabilities that shows the remaining contractual maturities
• A description of how it manages the liquidity risk inherent in those liabilities
Market risk. IFRS 7 defines “market risk” as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk comprises three types of risk: currency risk, interest rate risk, and other price risk.
IFRS 7 requires an entity to disclose a sensitivity analysis to market risk. Sensitivity analyses help users of financial statements evaluate what are reasonably possible
changes in the entity’s financial position and financial performance due to changes in market risk factors.
Unless the entity uses a sensitivity analysis that reflects interdependencies between risk variables to manage financial risks, the sensitivity analysis should be broken
down by type of market risk to which the entity is exposed at the reporting date, 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. The entity is also required to disclose the methods and assumptions used in preparing the sensitivity
analysis. When the sensitivity analyses disclosed are unrepresentative (e.g., because the year-end exposure does not reflect the exposure during the year), the entity