IFRS 7 – Financial Instruments: Disclosures

IFRS 7 requires disclosure of information about the significance of financial instruments to an entity, and the nature and extent of risks arising from those financial instruments, both in qualitative and quantitative terms.

IFRS 7 requires disclosure of (a) the significance of financial instruments for an entity’s financial position and performance; and (b) qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk.

The qualitative disclosures describe management’s objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent of risks which an entity exposes to, based on internal information provided to the entity’s key management personnel.

In Vietnam, there is no VAS equivalent to IFRS 7. However, on 06 November 2009, MoF issued Circular No. 210/2009/TT-BTC, requires entities to disclose financial instruments under IFRS 7. The requirements in Circular No. 210 become optional under Circular No. 200, applied from the financial year commencing on or after 01 January 2015.



IFRS 7 – Financial instruments: Disclosure


To prescribe disclosures that enable financial statement users assess the significance of financial instruments to financial position and performance of an entity, the nature and extent arising from its risks, and how the entity manages those risks. IFRS 7 and Circular No.210 are basically the same.

However, actually, the notes of financial statement under Circular No. 210 do not provide sufficient information because VAS do not provide for the recognition and measurement of financial instruments and fair value accounting.

Scope of work

IFRS 7 is applied to all types of financial instruments, except for which specifically excluded from its scope.

IFRS 7 is applied to both recognized and unrecognized financial instruments.

Key principles

IFRS 7 requires disclosures by the class of financial instruments, an entity shall group financial instruments into classes that are appropriated to the nature of the disclosed information and that take into account the characteristics of those. An entity should provide sufficient information to permit reconciliation detail items presented in the statement of financial position.

IFRS 7 requires entities provide disclosures that enable users to evaluate:

- The significance of financial instruments for financial position and performance of the entity.

- The nature and extent of risks arising from financial instruments incurred during the period and at the reporting date, and how the entity manages those risks.

Disclosure requirements

a. Disclosures for the statement of financial position:

- Carrying amount of financial instruments by their categories

- Financial assets or liabilities are measured at fair value through profit or loss (FVTPL)

- Investments in equity instruments designated at fair value through Other Comprehensive Income (FVOCI)

- Reclassification

- Offsetting financial assets and liabilities

- Collateral

- Allowance account for credit losses

- Compound financial instruments with multiple embedded derivatives

- Default and breach.

b. Disclosures for Statement of Comprehensive Income:

- Net gains or net losses on each class of financial instruments

- Total interest incomes and interest expenses

- Fee incomes and expenses, or

- Analysis of the gains or loss in the statement of Comprehensive Income from the derecognition of financial assets at amortized cost.

c. Other disclosures:

- Accounting policies

- Hedge accounting disclosures (risk management strategies, effect of hedge accounting, etc.)

- Fair value (how it was determined, fair values of financial assets and liabilities, explanations when the fair value cannot be determined).

Nature and extent of risks arising from financial instruments.

a. Credit risks: related to the entity’s financial assets and simply speaking, it is the risk that the entiry shall suffer financial loss due to the other party failing to pay for its obligation:

- Experience of credit risk management

- Information about amount arising from expected credit losses

- Disclosure credit risk

- Collateral and other credit enhancements obtained or called.

b. Liquidity risk relates to your financial liabilities, and it is a kind of “opposite” to the credit risk:

- Maturity analysis of financial liabilities with remaining contractual maturities (separately for non-derivative and derivative)

- To describe how to manage liquidity risk.

c. Market risk: is the risk that either the fair value or future cash flows from your financial assets or financial liabilities will fluctuate due to changes in market prices:

- Currency risk: the risk due to impact of exchange rate changes that cause the fluctuation of cash flow or fair value

- Interest risk: fluctuation is caused by change in market interest rate

- Other price risk: fluctuation is caused by change in other market price, such as commodity price, stock price, etc.

What should be done?
Research to apply the recognition and measurement requirements to competitive information about assets within the scope of IFRS 9.
Review all financial instruments issued for appropriate of classification and measurement.

Provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand impact of transactions, events, and other conditions on the entity’s financial position and performance.

Possible to re-measurement of related parties’ transactions.

At Crowe Vietnam, we offer a full range of IFRS services that meet the exact requirements of each individual client.