PFRS 7

FINANCIAL
INSTRUMENT:
DICLOSURE
Learning Objectives:
 State the two main categories of
disclosures under PFRS 7
 State the type of risks required by PFRS7
to be disclosed.
PFRS7 prescribe the disclosure requirement for
financial instruments, classified into two main
categories:
a) Significance of financial instruments to 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, and how the entity manages those risk
Significance of
Financial
Instruments
A. Statement of Financial Position
Carrying amount of financial assets and financial
liabilities
An entity is required to disclose the carrying amounts of
each of the following categories of financial instruments
under PFRS 9.
a. Financial assets measured at fair value through profit
or loss (FVPL), showing separate; those that are
designated and those that are mandatorily measured
at FVPL
b. Financial assets measured at amortized cost.
Statement of Financial Position
c. Financial asset measured at fair value through other
comprehensive income (FVOCI), showing separately those
that are mandatorily classified as such and those that are
elected to be classified as such.
d. Financial liabilities measure as such.
e. Financial liabilities measured at fair values through profit
or loss (FVPL), showing separately those that are designated
and those that meet the definition of held for trading.
 Financial assets and financial
liabilities measured at FVPL

 Financial Asset designated to be measured at

FVPL
• disclose the financial asset’s exposure to
credit risk and the change in fair value
attributable to changes in credit risk.
.
 Financial assets and financial
liabilities measured at FVPL
 Financial liabilities designated to be measured at FVPL
• disclose the change in fair value that is attributable to
changes in credit risk, the difference between the
carrying amount and maturity value, and, if an entity is
required to present the effects of changes in the
liability’s credit risk in OCI, any cumulative gain or
loss that were transferred within equity were realized.
 Financial assets measured at FVOCI

 Investments in equity securities elected to be measured at

FVOCI
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• Disclose those investments, reason for election, any
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dividends recognized during the period, and any transfers
YOUR YOUR equity.
of cumulative
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gain or loss within
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• If disposed,
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the fair value on derecognition date, and the cumulative

gain or loss on disposal.
 Reclassification

• If an entity has reclassified financial assets, it shall

disclose the date or reclassification, an explanation
of the change in business model, and the amount
reclassified between categories.
 Offsetting financial assets and
financial liabilities

An entity shall disclose the following:

• Gross amount of assets and liabilities
• Amounts that were set-off
• Net amounts presented in the SFP and a
description of the related legal right to set-off.
 Collateral
• An entity shall disclose amounts of financial assets pledged as
collateral for liabilities, including the terms and conditions of
the pledge.
• If the entity holds collateral that is permitted to sell or repledge,
the entity shall disclose the fair value of such collateral and, if it
has been sold or repledged, whether the entity has an obligation
to return it, and the terms and conditions associated with the
entity’s use of collateral.
  Allowance account for credit losses
• The carrying amount of financial asset that
is mandatorily measure at FVOCI is not
reduced by a loss allowance but loss
allowance is disclosed in the notes.

 Defaults and breaches

• The entity shall disclose any defaults and
breaches relating to loans payable.
B. Statement of Comprehensive Income
 Items of income, expenses, gains or loss
a) Net gains or Net losses on:
i. financial assets and financial liabilities measured at FVPL,
showing separately those reacting to designated and mandatorily
measured at FVPL.
ii. Financial assets measured at amortized cost
iii.Financial liabilities measured at amortized cost
iv. Financial assets measured at FVOCI, showing separately those
relating to elected and mandatorily measured at FVOCI.
B. Statement of Comprehensive Income

b) Total interest revenue and total interest expense,

computed using the effective interest method, for
financial instruments measured at amortized cost or
mandatory FVOCI
c) Fee income and expenses
Other disclosure
Fair value
• Fair value of each class of financial asstes and
financial liabilities in a ways that it can be comaored
to the carrying amount.
• Is not required when the carrying amount
approximates fair value, such as short term trade
receivables and payables, and for lease liabilities.
Nature and extent of
risks arising from
Financial
Instruments
PFRS7 requires the following risks to be
disclosed:
1. Credit risk
2. Liquidity risk
3. Market risk
1. Credit Risk
The risk that one party to a financial instrument will
cause a financial lossfor the other party by failing to
discharge an obligation.

2. Liquidity Risk
The risk that an entity will encounter will encounter
difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash
or another financial asset.
3. Market Risk
The risk that the fair value or future cash flows
of a financial instrument will fluctuate because of
changes in market price. It comprises of three
types of risk namely:
a) Currency risk
b) Interest rate risk
c) Other price risk
 The entity shall provide both qualitative and quantitative
disclosures for each type of the foregoing risks.

Qualitative disclosures: Quantitative disclosures:

a) Risk exposure and how
they arise
b) Risk management
objectives, policies and
processes including
methods used in measure
risk
c) Any changes in (a) or(b)
from the previous
periods.
a) Summary of quantitative
data about the entity’s
risk exposure at the end
of the reporting period.
b) Concentrations of risk
c) Other relevant
disclosures not provide
in (a) and (b).
Thank You!