The objective of IFRS 7 is to deal with the disclosures required in an entity’s financial statements in connection with financial instruments. Before the issuance of this IFRS, the disclosure requirements were contained within IAS 32. IAS 32 now contains just the presentation requirements of financial instruments.
This IFRS applies to all entities, including entities that have few financial instruments (e.g. simply receivables and payables).
In order to enable users to evaluate the effect of financial instruments in an entity’s financial statements, IFRS 7 requires the following disclosures to be contained within the financial statements:
- 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 end of the reporting period and how the entity manages those risks.
The qualitative disclosures describe management’s objectivities, policies and processes for managing those identified risks.
The quantitative disclosures provide the information needed about the extent to which the entity is exposed to risk based on information provided internally to the entity’s key management personnel.
About the author:
Steve Collings FMAAT ACCA DipIFRS is Audit Manager at Leavitt Walmsley Associates www.lwaltd.com. Read all of Collings's analyses of the International Financial Reporting Standards.