IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 39 / Financial Instruments: Disclosures, (IFRS 7)

451

3.1.4 .2 For each class of financial assets transferred that do not qualify for derecognition, an en– tity is required to disclose information about (a) The nature of the assets (b) The nature of the risks and rewards of ownership to which the ent ity remains exposed (c) The total carrying amount of the original assets, the amount of the assets that the entit y continues to recognize (if different from the total carry ing amount of the original assets), and the carryi ng amount of the assoc iated liabilities 3.1.4.3 This information is intended to assist users of financial statements eva luate the signifi- cance of the risks retained in transfers that do not qualify for derecognit ion. 3.1.5 Collateral 3.1.5.1 If an entity has pledged its own financial assets as collatera l for liabilities or contingent liabilities that it has, it is required to disclose the carry ing amount of those financial assets and the terrns and conditions related to its pledge. Such information helps users of financial statements evaluate the extent to which the entity's financial assets would be unavailable to the general credi– tors of the entity in case of bankruptc y. 3.1.5.2 If an entity holds collateral (whether financ ial or nonfin ancial ) and is permitted to sell or repledge the collateral in the absence of default by the owner of the collateral, it is required to dis– close the fair value of the collatera l held, the fair value of any such collateral sold or repledged , whether the entity has an obligation to return it, and the terms and conditions associa ted with its use of the collateral. For examp le, an ent ity may hold collateral that it can sell or repledge in sale and repurchase transactions or securitie s lending transactions. 3.1.6 Allowance Account for Credit Losses When an entity uses a separate account to record impairment of a financial asset (i.e., an allowance account) rather than directly reduc ing the carrying amount of the asset, IFRS 7 requires disclosure of a reconciliation of changes in that account during the period for each class of financial assets. Practical Insigh t Typically, entities use an allowance account to record impairment losses on a group basis under lAS 39, because such losses cannot yet be identified with individual assets. Analysts and other users of financial statements use informat ion about the amount of impairment allowances and changes therein to assess the adequacy of an entity's allowance for impairment losses, for example, by comparing it to industry benchmarks or through time. 3.1.7 Compound Financia l Instruments with Multiple Embedded Derivatives If an entity has issued an instrument that contains both a liabil ity and an equity component (as determined in accordance with lAS 32) and the instrument has multiple embedded derivatives whose values are interdependent , it shall disclose the existence of those features. Example One example of an instrument with multiple embedded derivati ves is an issued callable convertible bond that gives the issuer a right to call the instrument back from the holder (i.e.. an embedded call option f eature) and the holder a right to convert the instrument into equity of the issuer (i.e., an em– bedded equity conversion option fea ture). For such a finan cial instrument, the embedded f eatures are interdependent because if one is exercised, the other one is extinguished. This means that the sum of the separately determined fai r values of the components of the fin ancial instrument will not necessarily equal the fair value ofthe fi nancial instrument as a whole. 3.1.8 Defau lts and Breaches Under IFRS 7, an entity is required to provide disclosures about defaults and breaches of loans payable and other loan agreements, such as details of any defaults during the period of principal or interest of those loans payable. Such disclosures provide information about the entit y' s creditworthiness and its prospects of obtaining future loans.