IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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

• The amount that was remo ved from equity during the period and included in the initi al measurement of the acquisition cost or other carry ing amo unt of a nonfinancial asse t or nonfina ncia l liability in a hedged highl y probable forecast transaction 3.3.2 .4 An entity is also required to disclose • In fair value hedges, gains or losses on (a) the hedging instrument and (b) the hedged item attributable to the hedged risk • The ineffectiveness recognized in profi t or loss that arise s from cash flow hedges • The ineffectiveness recognized in profi t or loss that arise s from hedges of net investments in foreign operations 3.3.3 Fair Value 3.3.3.1 IFRS 7 requires an entity to disclose, for each class of financia l asset s and financial li– abilities, the fair value of that class of assets and liabilities. Disclosure of fair value shall be made in a way that permits the information to be compared with the corresponding carryi ng amount in the balance sheet. Many users of financial statements consider fair value information useful , be– cause it provides a market-based assessment of the value of financial instruments that does not de– pend on the cost of the instruments when they were recogni zed initially by the entity or the cate– gory in which they were classified by the entity. 3.3.3.2 Fair value information is not required when the carry ing amount is a reasonable approxi– mation to fair value. In addition, when inves tments in unquoted equity instruments or derivatives linked to such equity instruments are measured at cos t under lAS 39 because their fair value cannot be measured reliably, that fact shall be disclosed together with a descript ion of the financial in– struments, their carry ing amount, an exp lanation of why fair value cannot be meas ured reliably, and, if possible, the range of estimates within which fair value is highl y likely to lie. Disclosure of fair value is not required for such an instrument. Additionally, fair value information is not required for cont racts containing a discretionary participation feature (as described in IFRS 4) if the fair value of that feature cannot be measured reliably. 3.3.3.3 To complement the fair value information provided, an entity shall also disclose (a) The methods and assumptions applied in determining fair values (e.g., the assumptions relating to prepayment rates, rates of estimated credit losses, and interest rates or discount rates) (b) Whet her fair values are dete rmined directly, in full or in part , by refere nce to published price quotations in an active market or are estimated using a valuation technique (c) Whether its financial statements include financial instruments measured at fair values that are determined in full or in part using a valuation technique based on assumptions that are not supported by observable curre nt marke t transactions in the same instrument and not based on avai lable observable market data, includin g information about the sensitivity of the fai r value estimates to changes in assumptions (d) The total amount of the change in fair value estimated using a valuation techn ique that was recognized in profit or loss during the period 3.3.3.4 If there is a differenc e between the transaction price fair value at initial recognition and the amount that would be dete rmined at that date using a valuation techn ique, an entity also dis– closes its accounting policy for recogni zing that difference in profit or loss and the aggregate dif– ference yet to be recogni zed in profit or loss. Such differences may arise, for instance, for dealers in financial instruments. 4. NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS The second of the two principal objectives of IFRS 7 is to require entities to disclose information that enables users of its financial statements to eva luate the nature and extent of risks arising from financia l instruments to which the entity is exposed at the reporting date. These disclosure requirements focus on the risks that arise from financial instrument s (including credit risk, liquidity risk, and market risk) and how they have been managed by an entity. The extent of disclosure depends on the extent of the entity 's expo sure to risks arising from financial instruments.