ASC Approves Standards on Disclosures for Financial Instruments and Capital
The Accounting Standards Council (ASC) approved the adoption of International Financial Reporting Standard (IFRS) 7, Financial Instruments: Disclosures and a complementary Amendment to IAS 1, Presentation of Financial Statements—Capital Disclosures, issued by the International Accounting Standards Board (IASB), as Philippine Financial Reporting Standard (PFRS) 7 and as an amendment to Philippine Accounting Standard (PAS) 1, respectively. The ASC issued an Invitation
to Comment on the proposed IFRS 7 in August 2004.
New Standard on Financial Instruments Disclosures
IFRS 7 introduces new requirements to improve the information on financial instruments. It replaces IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions and some of the requirements in IAS 32, Financial Instruments: Disclosure and Presentation. The Standard applies to any entity that holds financial instruments. The level of disclosure required depends on the extent of the entity’s use of financial instruments and its exposure to financial risk.
IFRS 7 requires disclosures of:
- the significance of financial instruments for an entity’s financial position and performance.These disclosures incorporate many of the requirements previously in IAS 32 (whose title has been changed to Financial Instruments: Presentation to reflect the change).
- 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 to which the entity is exposed to risk, based on information provided internally to the entity’s key management personnel. Together, these disclosures provide an overview of the entity’s use of financial instruments and the exposures to risks they create.
IFRS 7 includes an appendix of mandatory application guidance that explains how to apply the requirements in the IFRS. It is accompanied by Implementation Guidance that describes how an entity might provide the disclosures required by the IFRS.
The Standard is effective for annual periods beginning on or after January 1, 2007. Earlier application is encouraged. If an entity applies the Standard for annual periods beginning before January 1, 2006, it need not present comparative information for the disclosures about the nature and extent of risks arising from financial instruments.
IFRS 7 amends the disclosure requirements of IFRS 4, Insurance Contracts, to be consistent with those in IFRS 7.
Amendments to Capital Disclosures
The Amendments to IAS 1 adds requirements for all entities to disclose the entity’s objectives, policies and processes for managing capital; quantitative data about what the entity regards as capital; whether the entity has complied with any capital requirements; and if it has not complied, the consequences of such non-compliance.
These disclosures provide information about the level of an entity’s capital and how it manages capital, which are important factors for users to consider in assessing the risk profile of an entity and its ability to withstand unexpected adverse events.
These disclosure requirements apply to all entities effective for annual periods beginning on or after January 1, 2007. Earlier application is encouraged.
PFRS 7 and the amendment to PAS 1 has been forwarded to the Board of Accountancy and Professional Regulation Commission for approval.