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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: derivative contracts: FRS 13 disclosure requirements: narrative disclosure

Narrative disclosure

The purpose of the narrative disclosures is to allow the company to discuss and explain their objectives, policies and strategies for holding or issuing financial instruments, focusing on the risk profile of the entity for each of the main financial risks arising in connection with financial instruments and the significance of such instruments in relation to the entity.


Narrative disclosures should typically describe the financial risk management and treasury policies with respect to:

  • the fixed and floating split, maturity profiles and currency profiles of financial instruments
  • the extent to which foreign currency financial instruments are hedged to the functional currency of the business unit concerned
  • the extent to which foreign currency borrowings and other financial instruments are used to hedge foreign currency net investments; and
  • any other hedging.

FRS13 explains that a hedge is ‘an instrument that individually, or with other instruments, has a value or cash flow that is expected, wholly or partly, to move inversely with changes in the value or cash flows of the position being hedged’. This need not be, but more often is, a derivative.

Though not mandatory, companies are encouraged to provide a market price risk discussion to assist in the interpretation of numerical disclosures.

Narrative disclosures may be included in the ‘Operating and Financial Review’ rather than in the body of the financial statements.