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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: International Accounting Standards: financial instrument disclosures under IFRS 7

Disclosure Standards

IFRS 7 (‘Financial Instruments: disclosures’), applicable for accounting periods beginning on or after 1 January 2007, sets out the disclosure requirements for any entity holding financial instruments (and applying IFRS). It replaced the disclosure requirements previously contained in IAS 32.

The objective of the standard is to require entities to provide disclosures in their financial statements that enable users to evaluate:

  • The significance of financial instruments for the entity’s financial performance and position;
  • The nature and extent of risks arising from financial instruments to which the entity is exposed; and
  • How the entity manages those risks.

The standard includes specific guidance on disclosures relating to:

  • Classification of financial instruments;
  • Re-classification of financial instruments;
  • De-recognition;
  • Collateral;
  • Accounting policies;
  • Hedging; and
  • Fair value measurement.

It also gives guidance on minimum requirements of disclosure of both the quantitative and qualitative risks an entity is exposed to in its financial instruments, in order to identify and quantify risks to the entity, and detail how such risks are managed. These risks include, but are not limited to:

  • Credit risk;
  • Market risk; and
  • Liquidity risk.

There have been a number of changes to IFRS 7 since its issue in 2005. These changes reflect in part enhanced disclosure requirements as a consequence of developments in financial markets between 2007 and 2009. Further changes to the standard are expected in the light of the ongoing project to update IAS 39.