PFRS 7 Financial Instruments: Disclosures
Learning Objectives
• State the two main categories of disclosures under PFRS 7.
• State the types of risks required by PFRS 7 to be disclosed.
Conceptual Framework & Acctg. Standards 1
Objectives of PFRS 7
• PFRS 7 prescribes the disclosure requirements for financial
instruments. The disclosures are broadly classified into the
following 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
risks. (PFRS 7.1)
Conceptual Framework & Acctg.
2
Standards
Significance of financial instruments
Statement of financial position
• An entity is required to separately disclose the carrying amounts of
each of the categories of financial assets and financial liabilities under
PFRS 9.
• If an entity has reclassified financial assets, it shall disclose the date of
reclassification, an explanation of the change in business model, and the
amount reclassified between categories.
• If an entity has offset financial assets and financial liabilities, it shall
disclose the gross amounts of those assets and liabilities, the amounts
that were set-off, the net amounts presented in the statement of
financial position and a description of the related legal right of set-off.
Conceptual Framework & Acctg.
3
Standards
Significance of financial instruments
Statement of profit or loss and other comprehensive income
• An entity is required to disclose separately the income, expense,
gains or losses arising from the different classifications of financial
instruments under PFRS 9.
Other disclosures
• The entity shall disclose the fair value of each class of financial
assets and financial liabilities in a way that the fair value can be
compared with the carrying amount.
Conceptual Framework & Acctg.
4
Standards
Nature and extent of risks arising from financial
instruments
a. Credit risk – is “the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation.” (PFRS [Link].A)
b. Liquidity risk – is the risk that an entity will encounter difficulty in meeting
obligations associated with financial liabilities.
c. Market risk – is “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 the following three types of risk:
i. Currency risk – the risk associated with fluctuations in foreign exchange
rates.
ii. Interest rate risk –the risk associated with changes in market interest rates.
iii. Other price risk – the risk associated with fluctuations in market prices
other than those arising from interest rate risk or currency risk.
Conceptual Framework & Acctg.
5
Standards
Qualitative and Quantitative disclosures on risks
• The entity shall provide both qualitative and quantitative
disclosures for each type of the risks required by PFRS 7 to be
disclosed.
Conceptual Framework & Acctg.
6
Standards
APPLICATION OF
CONCEPTS
PROBLEM FOR CLASSROOM DISCUSSION
Conceptual Framework & Acctg. Standards 7
