IAS 32 vs IFRS 7

IAS 32 Financial instruments: disclosure and presentation

• The classification of financial instruments b/w liability and equity

• Presentation of certain compound instruments

• The disclosure of information about financial instruments

IFRS 7 prescribes the disclosures in an entity’s financial statements that enable users of those financial statements to evaluate:

• The significance of financial instruments for the entity’s financial position and performance; and

• The nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks.

IAS 32 -- Disclosure

“The purpose of the disclosures required by this Standard is to provide information to enhance understanding of the significance of financial instruments to an entity’s financial position, performance and cash flows and assist in assessing the amounts, timing and certainty of future cash flows associated with those instruments.”

(IAS32)

• There are different types of risk

– Market risk (currency risk, interest rate risk, price risk)

– Credit risk

– Liquidity risk

– Cash flow interest rate risk

• Disclosures will be numerical, narrative or a combination of both

• The level of detail of disclosure depends on management judgment

• Details of risk management policies and hedging activities must be disclosed

• Terms, conditions and accounting policies must be disclosed

• Further disclosures are required relating to Interest rate risk, Credit risk and Fair values

IFRS 7

The disclosures focus on the risks that arise from financial instruments and how they have been managed. These risks typically include, but are not limited to, credit risk, liquidity risk and market risk.

Credit risk:

An entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into the account the characteristics of those financial instruments. An entity shall provide sufficient information to permit reconciliation to the line items presented in the B/S.

• An analysis of the age of financial assets that are past due as at the reporting date but not impaired

• An analysis of financial assets that are individually determined to be impaired as at the reporting date, including the factors the entity considered in determining that they are impaired.

Liquidity risk

A maturity analysis for financial liabilities that shows the remaining contractual maturities.

A description of how it manages the liquidity risk.

Market risk:

A sensitivity analysis for each type of market risk

The methods and assumptions used in preparing the sensitivity analysis

Changes from the previous period in the methods and assumptions used, and the reasons for such change.

Adoption of Standard before effective date

If the entity has applied IFRS 7 for a period beginning before 1 January 2007, it shall disclose that fact.

Exemption in the first period of adoption before 1 January 2006 from presenting certain comparative information.