IFRS 7 – Financial Instruments: Disclosure

25/03/2024

IFRS 7 requires disclosure of information about the importance of financial instruments to a company, the nature, and the extent of risks arising from those financial instruments, covering both qualitative and quantitative aspects.

IFRS 7 requires the presentation of information (a) about the significance of financial instruments to the company’s financial position and performance; and (b) the nature and extent of risks arising from financial instruments, including minimum disclosure requirements on credit risk, liquidity risk, and market risk.

Qualitative disclosures describe objectives, policies, and processes for managing those risks. Quantitative disclosures provide information on the extent of risks a company faces, based on information provided to the company’s key management.

In Vietnam, there is no VAS standard equivalent to IFRS 7. However, on November 6, 2009, the Ministry of Finance issued Circular No. 210/2009/TT-BTC, requiring entities to disclose financial instruments according to IFRS 7. The requirements under Circular 210 later became optional under Circular 200, applied from fiscal years beginning on or after January 1, 2015.

Content	IFRS
IFRS 7 – Financial Instruments: Disclosure
Purpose	Regulations on disclosures allow users of financial statements to assess the significance of financial instruments to a company’s financial position and performance, the nature and extent of risks arising from financial instruments, and how the company manages those risks. IFRS 7 and Circular No. 210 are basically similar. However, in practice, financial statement disclosures under Circular No. 210 do not provide sufficient information because VAS does not offer methods for recognition and measurement of financial instruments and fair value accounting.
Scope	IFRS 7 applies to all types of financial instruments, except those excluded from the scope of IFRS 7. IFRS 7 applies to both recognized and unrecognized financial instruments.
Main Principles	IFRS 7 requires disclosures by type of financial instruments; a company will group financial instruments into categories consistent with the nature of the disclosed information and relevant to the characteristics of those financial instruments. A company must provide sufficient information to enable reconciliation with the detailed items presented on the balance sheet. IFRS 7 requires companies to provide disclosures that allow users to assess: The significance of financial instruments to the company’s financial position and performance; The nature and extent of risks arising from financial instruments that may arise during the period and at the reporting date, and how the company manages those risks.
Disclosure Requirements	a. Disclosures in the Balance Sheet: Carrying value of financial instruments by category Financial assets or liabilities measured at fair value through profit or loss (FVTPL) Equity investments measured at fair value through other comprehensive income (FVOCI) Reclassification Offsetting of financial assets and liabilities Collateral held Provision for credit losses Complex financial instruments with multiple types of derivatives Defaults and breaches. b. Disclosures in Other Comprehensive Income Statement: Net gain or loss on each category of financial instruments Total interest revenue and expense Fee expenses and fee revenue, or Analysis of gains or losses in the comprehensive income statement from ceasing recognition of financial assets at allocated fair value. c. Other Disclosures: Accounting policies Disclosure of risk hedging accounting policies (risk management strategies, effectiveness of hedge accounting, etc.) Fair value (methods for determining fair value, fair value of financial assets and liabilities, explanations when fair value cannot be determined).
Nature and Level of Risks Arising from Financial Instruments	a. Credit Risk: relates to financial assets and simply put, it is the risk that the company will incur financial losses if the counterparty fails to fulfill its obligations: Credit risk management experience Information on the expected credit loss amount Presentation of credit risk Collateral and other enhanced credit products. b. Liquidity Risk: relates to financial liabilities and is essentially the “opposite” of credit risk: Analysis of remaining contractual maturity by contract (separately for derivative and non-derivative financial liabilities) Description of liquidity risk management methods. c. Market Risk: is the risk that the fair value or future cash flows from financial assets or liabilities will fluctuate due to changes in market prices. Currency risk: risk from changes in exchange rates causing fluctuations in cash flows or fair value. Interest rate risk: fluctuations caused by changes in market interest rates. Other price risks: fluctuations caused by changes in the prices of other markets, such as commodity prices, stock prices, etc.

What tasks need to be done?

Study the application of recognition and measurement requirements for comparative information on assets within the scope of IFRS 9.
Review all issued financial instruments regarding the appropriateness of classification and measurement.
Provide additional information when complying with specific IFRS requirements is not sufficient for users to understand the effects of transactions, events, and other conditions on the company’s financial position and performance.
There may be a need to reassess transactions with related parties.