FINANCIAL REPORTING

MAHFUZ MOHAMMED ABUL-KHAIR

INDEX NUMBER: 10282293

 IAS 32 FINANCIAL INSTRUMENTS
 The objective of this Standard is to establish principles for
presenting financial instruments as liabilities or equity and
for offsetting financial assets and financial liabilities. It
applies to the classification of financial instruments, from
the perspective of the issuer, into financial assets, financial
liabilities and equity instruments; the classification of
related interest, dividends, losses and gains; and the
circumstances in which financial assets and financial
liabilities should be offset.

 Financial Instrument is contract that gives rise to

 Financial asset
 Financial Liability and
 Equity Instrument
A contract that gives rise to both financial asset of one
entity and financial liability or equity of another
company.
Financial Asset: Any asset that is in cash. It is also
equity instrument of another entity. e.g. shares

Financial Liability: A contractual obligation to

deliver cash or another financial asset. e.g. trade
payables, loans payables

Equity Instrument: Any contract that evidences a

residual interest in the assets of an entity after
deducting all of its liabilities
 PRESENTATION OF FINANCIAL INSTRUMENTS
Classify financial instrument on initial recognition as
either a financial asset, financial liability or equity
instrument in accordance to substance arrangement of
contractual arrangements and definitions.

IAS 39 FINANCIAL INSTRUMENTS: RECOGNITION AND

MEASUREMENT
o IAS 39 establishes principles for recognizing and
measuring financial assets, financial liabilities and
some contracts to buy or sell non-financial items. It
also prescribes principles for derecognizing financial
instruments and for hedge accounting.
1. Financial Assets
o Financial assets at FVTPL
a) Financial assets designated at fair value
b) Held for trading
E.g. Loans and receivables, available for sale, held to
maturity
2. Financial Liabilities
o Financial liabilities at FVTPL

a) Financial liabilities designated at fair value

b) Held for trading
INITIAL RECOGNITION
Financial asset or a financial liability is recognized
when, and only when, the entity becomes a party to the
contract.
MEASUREMENT
Financial assets and financial liabilities should be
measured initially at fair value. Subsequent
measurement depends on the category of financial
instrument. Some categories are measured at amortized
cost, and some at fair value.
Loans and receivables are measured at amortized cost
Held to maturity investments are measured at amortized
cost
Financial liabilities are measured at amortized cost
IMPAIREMENT
An entity shall assess at the end of each reporting period
whether there is any objective evidence that a financial asset
or group of financial assets is impaired. Financial assets
carried at amortized cost, financial assets carried at cost and
available-for-sale financial assets are potentially subject to
impairment. IAS 39 distinguishes impairment from other
declines in value and requires impairment testing of all asset
categories except financial assets measured at fair value
through profit or loss. However, this exception does not
apply to an investment in an equity instrument that was
initially
categorized as a financial asset at fair value through profit or
loss and is subsequently measured at cost.
IAS 41 AGRICULTURE
The objective of this Standard is to prescribe the
accounting treatment and disclosures related to
agricultural activity.
IAS 41 applies to biological assets, agricultural activity
and government grants related to biological assets
measured at fair value less costs to sell.

The Standard provides the following definitions:

 Agricultural activity (and its examples: raising
livestock, cropping, cultivating orchards and
plantations, etc.),
 Biological transformation,

 Biological asset (living animal or plant)

 Bearer plant,
 Agricultural produce (harvested product of entity’s
biological assets), etc.

Recognition
 Control of an asset by the entity as a result of past
events;
 Probable future economic benefits will flow to the
entity; and
 Fair value or cost of the asset can be measured
reliably.
Measurement
A biological asset shall be measured on initial
recognition and at the end of each reporting period
at its fair value less costs to sell.

 Agricultural produce harvested from an entity’s

biological assets shall be measured at its fair value
less costs to sell at the point of harvest.
 IAS 41 then deals with gains and losses, inability to
measure fair value reliably, provides rules for
government grants related to biological assets.
 The standard requires number of requires number
of disclosures.
IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES
The objectives are to enable the users of financial statements of an entity to
realize the significance of the financial instruments and the nature and
extent of risks arising from such instruments and how such risks are
managed.
The principles in this IFRS complement the IAS 32 & 39.

Disclosure requirements
IFRS requires certain disclosures to be presented by category of
instrument based on the IAS 39 measurement categories. Certain
other disclosures are required by class of financial instrument. For
those disclosures an entity must group its financial instrument into
classes of similar instruments as appropriate to the nature of the
information presented.
The two main categories are :
1. Information about the significance of financial instruments
2. Information about the nature and extent of risks arising from
financial instruments
 Financial Statements of Financial Institution
1. Information about the significance of financial instruments
Statement of financial position
Disclose the significance of financial instruments for an
entity's financial position and performance
a) Financial assets measured at fair value through profit and
loss, showing separately those held for trading and those
designated at initial recognition.
b) Held to maturity investments
c)Loans and receivables
d)Available for sale assets
e) Financial liabilities at fair value through profit and loss,
showing separately those held for trading and those designated
at initial recognition
f) Financial liabilities measured at amortized cost
2. Nature and Extent of Exposure to Risks arising
from Financial Instruments
a) Qualitative disclosures
 risk exposures for each type of financial instrument
 management's objectives, policies, and processes
for managing those risks changes from the prior
period
b)Quantitative disclosures
 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.
IFRS 9 FINANCIAL INSTRUMENTS
The objective of this Standard is to establish
principles for the financial reporting of financial
assets and financial liabilities that will present
relevant and useful information to users of
financial statements for their assessment of the
amounts, timing and uncertainty of an entity’s
future cash flows.
Initial recognition
When the entity becomes a party to the contractual
provisions of the instrument.
 Regular way transactions

Trade date accounting Settlement date

accounting

At the trade date At the settlement date

De-recognition of Financial Assets

An entity should de-recognize financial asset when:
 The Contractual rights to the cash flows from the
financial asset expire or
 When the entity transfers financial assets, risks and
rewards of ownerships to another party
De-recognition of Financial Liabilities
An entity should de-recognize a financial liability when
it is extinguished.
When the obligations identified in the contract is
discharged, cancelled or expires
The liability is discharged when the entity delivers cash
or other financial
The liability is cancelled when it is legally released from
its primary obligation
It expires due to passage of time
Classification of Financial Assets
Financial Assets are classified based on the:
Business Model and contractual cash flow characteristics
The business should tell you why a business is held.
i.e. Objectives of the business
Hold assets to collect contractual cash flows or sell assets

Contractual terms of the financial assets on specified

dates that are solely principal plus interest.

 Measured at amortized
Cost= Business Model + Contractual Cash flow
 Measured at fair value through profit or loss

All other financial assets .

 Measured at fair value through Comprehensive income

Equity investments not held for trading.

IFRS 9 carries forward with one exception the IAS 39
requirement to measure all financial assets and liabilities at
fair value at initial recognition (adjusted in some cases for
transaction costs). The exception is for trade receivables
that do not contain a significant financing component, as
defined by IFRS 15, Revenue from Contracts with
Customers. These are measured at the transaction price
(e.g., invoice amount excluding costs collected on behalf of
third parties, such as sales taxes).
Determining whether a significant financing component
exists involves considering things like the difference
between the cash price for an asset and the transaction price
in the contract, the term of the receivable and prevailing
interest rates. As a practical expedient, entities can presume
that a trade receivable does not have a significant financing