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AASB Financial Instruments Disclosure AFIAA

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					    AASB 7 Financial Instruments: Disclosure




   AASB 7 Financial
Instruments: Disclosure
            AASB 7 Financial Instruments: Disclosure




Agenda
 • Background
 • Implications for financial institutions
 • Significance of financial instruments
    • Balance sheet
    • Accounting policies
    • Fair value
 • Risk Disclosures
 • AASB 101 Capital Management
   Disclosures
  AASB 7 Financial Instruments: Disclosure


Significance of           Nature and
Financial
Instruments               Extent of Risks

AASB 7.8-30

                     Credit     Liquidity    Market


                  Qualitative               Quantitative
                  AASB 7.33                 AASB 7.34-42
              AASB 7 Financial Instruments: Disclosure




Background
• For reporting periods commencing 1 January
  2007
• Comparatives required
• No parent entity exemption
• Applies to all general purpose financial reports
• Application guidance important for a full
  understanding of AASB 7
             AASB 7 Financial Instruments: Disclosure




Background
• AASB 7 brings together disclosure requirements
  previously included in:
      • AASB 132 Financial Instruments:
        Disclosures and Presentation
      • AASB 130 Disclosures in the Financial
        Statements of Banks and Similar Financial
        Institutions
• PLUS additional new disclosures!
               AASB 7 Financial Instruments: Disclosure


Implications for Financial
Institutions
Balance Sheet Items
• Unrecognised financial instruments
• Instruments transferred in securitisation that do
  not qualify for derecognition
• Collateral held
Income Statement
• Net gains/losses for each category of financial
  assets and liabilities
• Revenue on impaired loans
• Provisioning and age analysis of impaired loans
               AASB 7 Financial Instruments: Disclosure


Implications for Financial Institutions

Accounting Policy
• the criteria for determining when an allowance
  account is used for all financial assets
• Renegotiated loans
Fair Value
• Disclose Day 1 profit/loss not recognised in the
  financial statements
• For financial assets where FV cannot be
  determined, how the entity intends to dispose
               AASB 7 Financial Instruments: Disclosure


Implications for Financial Institutions

Risk Disclosures
• Concentration of risk
• Description of how entity manages risk i.e.
  method
Credit Risk
• Age analysis for each class of financial asset
• Details of collateral held as security for amounts
  past due but not impaired and amounts
  impaired must include an estimate of fair value,
  unless impracticable
                AASB 7 Financial Instruments: Disclosure


Implications for Financial Institutions

Liquidity Risk – Maturity analysis
• Includes all contractual obligations
• Gross amounts

Value at Risk
• Can replace sensitivity analysis

Capital management disclosures
  - compliance with regulatory capital
  requirements
              AASB 7 Financial Instruments: Disclosure



Disclosures no longer required

• Analysis of interest income and expenses
• Disclosure of restructure loans
• Significant terms of financial assets and
  liabilities
• Trust activities
               AASB 7 Financial Instruments: Disclosure




Scope
Shall be applied to all entities to all types of financial
instruments except:
•Interest in subsidiaries, associates and JVs
•Employee benefits
•Contingent consideration in a business combination
•Insurance contracts
•Financial instruments/contracts under AASB 2
Share-based Payment
•The entity’s own equity instruments
                AASB 7 Financial Instruments: Disclosure




Scope
Applies to recognised & unrecognised financial
instruments
Recognised financial instruments
•Financial instruments within the scope of AASB 139
• Contracts to buy or sell non-financial items that are
  within the scope of AASB 139 (crude oil futures, iron
  ore futures etc)
Unrecognised financial instruments
• Loan commitments
• Finance Leases
                AASB 7 Financial Instruments: Disclosure




Materiality
•Materiality applies

•AASB 7 Para Aus 2.4 - Disclosure requirements only
apply if application is material in accordance with
AASB 1031 Materiality.

•This is to ensure that the financial statements do not
get overburdened with trivial disclosures
              AASB 7 Financial Instruments: Disclosure


Classes of financial
instruments
- Certain parts of AASB 7 require disclosure by
  class of financial instrument
- A class is smaller than a category
   - Take into account the characteristics of those
     financial instruments within a category
- Reconciliation to the line items in the balance
  sheet
- Distinguish instruments measured @ amortised
  cost from those measured @ FV
  AASB 7 Financial Instruments: Disclosure


Significance of           Nature and
Financial
Instruments               Extent of Risks

AASB 7.8-30

                     Credit     Liquidity    Market


                  Qualitative               Quantitative
                  AASB 7.33                 AASB 7.34-42
               AASB 7 Financial Instruments: Disclosure


Significance of financial instruments
for financial position and performance

•   Balance Sheet Items
•   Income Statement Items
•   Accounting Policies
•   Hedge Accounting
•   Fair Value
     AASB 7 Financial Instruments: Disclosure




BALANCE SHEET ITEMS
                  AASB 7 Financial Instruments: Disclosure



Balance Sheet Items

Disclosures required for:
• Categories of financial assets and financial liabilities
• Financial assets /liabilities at FV through P/L
• Reclassification
• Derecognition
• Collateral
• Allowance account for credit losses
• Compound Financial Instruments with multiple
  embedded derivatives
• Defaults and breaches
               AASB 7 Financial Instruments: Disclosure



Derecognition

• Disclosures required where an entity may
  have transferred financial assets in such a
  way that part or all of the financial assets do
  not qualify for derecognition under AASB
  139 para 15-37.
• Disclose by class (not category)
• Similar to AASB 132, para 94(a)
                AASB 7 Financial Instruments: Disclosure



Derecognition

• Nature of assets
• Nature of risks and rewards of ownership to
  which still exposed
• Entity continues to recognise all assets ->
  carrying amount of assets and associated
  liabilities
• Entity recognises assets to extent of continuing
  involvement -> carrying amount of original
  assets, carrying amount still recognised and
  carrying amount of associated liabilities.
                  AASB 7 Financial Instruments: Disclosure



Collateral

When an entity holds collateral (financial or non-
financial assets) and is permitted to sell or repledge
the collateral in the absence of default by the owner
of the collateral, it shall disclose:
(a) The FV of collateral held
(b) The FV of any such collateral sold or repledged
     and whether the entity has an obligation to
     return it; and
(c) The terms and conditions associated with its
     use of the collateral
                AASB 7 Financial Instruments: Disclosure



Allowance account for credit losses

When financial assets are impaired by credit
losses and the entity records the impairment
in a separate account rather than directly
reducing the carrying amount of the asset, it
shall disclose a reconciliation of changes in
that account during the period for each class
of financial assets.
                 AASB 7 Financial Instruments: Disclosure



Allowance account for credit losses

Note X Member Loans - receivables
                                        2007      2006
                                          $         $
Member loans                            5,000     4,500
Allowance for doubtful loans            (600)     (400)
                                        4,400     4,100
                 AASB 7 Financial Instruments: Disclosure



Allowance account for credit losses

Note X Allowance for Impairment          2007     2006
                                          $         $
Opening Balance                          400      200
Provisions for doubtful loans            280      250
Receivables written off during the yr    (75)       (50)
Reversal of amounts provided              (5)      ___-
Closing Balance                          600        400
                 AASB 7 Financial Instruments: Disclosure



Defaults and breaches AASB 7.18

For loans payable recognised at the reporting date,
an entity shall disclose
(a) Details of any defaults during the period of
    principal, interest, sinking fund, or redemption
    terms of those loans payable;
(b) The carrying amount of the loans payable in
    default at the reporting date; and
(c) Whether the default was remedied, or the terms of
    the loans payable were renegotiated, before the
    financial statements were authorised for issue.
                  AASB 7 Financial Instruments: Disclosure



Defaults and breaches

•Loans Payable defined as
      ‘financial liabilities, other than short-term trade
      payables on normal credit terms’

•Disclosures are required for any defaults/breaches
during the year

•Disclosures required for any other breaches that
gives the lender the right to demand accelerated
repayments – unless remedied by reporting date
      AASB 7 Financial Instruments: Disclosure




ACCOUNTING POLICIES
                 AASB 7 Financial Instruments: Disclosure



Accounting policies

In accordance with paragraph 108 of AASB 101, an
    entity discloses, in the summary of significant
    accounting polices, the measurement basis (or
    bases) used in preparing the financial statements
    and the other accounting polices used that are
    relevant to an understanding of the financial
    statements.
 AASB 7 Financial Instruments: Disclosure




FAIR VALUE
                AASB 7 Financial Instruments: Disclosure



Fair Value AASB 7.25

  For each class of financial assets and financial
  liabilities an entity shall disclose the FV of the
  class of assets and liabilities in a way that permits
  it to be compared with its carrying amounts

  NOTE: Applies to financial instruments carried at
  cost/amortised cost!
                  AASB 7 Financial Instruments: Disclosure



Fair Value AASB 7.29

Disclosures of fair value are not required:
(a) when the carrying amount is a reasonable
    approximation of fair value, for example, for financial
    instruments such as short-term trade receivables
    and payables; floating rate loans
(b) for an investment in equity instruments that does not
    have a quoted market price in an active market, or
    derivatives linked to such equity instruments; or
(c) for a contract containing a discretionary participation
    feature if the fair value of that feature cannot be
    measured reliably.
                 AASB 7 Financial Instruments: Disclosure



Fair Value AASB 7.30

In the cases described in paragraph 29(b) and (c), an
   entity shall disclose
(a)the fact that fair value information has not been
   disclosed for these instruments because their fair
   value cannot be measured reliably;
(b)a description of the financial instruments, their
   carrying amount, and an explanation of why fair
   value cannot be measured reliably
(c)information about the market for the instruments –
   NEW!
                  AASB 7 Financial Instruments: Disclosure



Fair Value AASB 7.30

(d) information about whether and how the entity
    intends to dispose of the financial instruments; and -
    NEW!
(e) if financial instruments whose fair value previously
    could not be reliably measured are derecognised,
    that fact, their carrying amount at the time of
    derecognition, and the amount of gain or loss
    recognised
    AASB 7 Financial Instruments: Disclosure




RISK DISCLOSURES
                  AASB 7 Financial Instruments: Disclosure




Objectives of AASB 7
Significance of               Nature and Extent of
   Financial                         Risks
 Instruments

AASB 7.8-30

                        Credit      Liquidity        Market




                     Qualitative                 Quantitative
                     AASB 7.33                  AASB 7.34-42
                      AASB 7 Financial Instruments: Disclosure




Risk Disclosures


                                        •Summary quantitative data
•Exposures to risks and how they        about its exposure to that risk
arise                                   at reporting date

•Objectives, policies and processes     •Based on information
for managing the risk and the           provided internally to KMP
method used to measure the risk
                                        •Concentration of risk if not
•Any changes from the previous          apparent from the summary
period                                  data

          AASB 7.33                                AASB 7.34
                 AASB 7 Financial Instruments: Disclosure




Concentrations of Risk
Where financial instruments have similar
   characteristics and are affected similarly by
   changes in economic or other conditions
(a)A description of how management determines
   concentrations
(b)A description of the shared characteristics that
   identifies each concentration (e.g. counterparty,
   geographical area, currency or market); and
(c)The amount of the risk exposures associated
   with all financial instruments sharing that
   characteristics
  AASB 7 Financial Instruments: Disclosure




CREDIT RISK
                       AASB 7 Financial Instruments: Disclosure


Qualitative Information - AASB 7.33

-Disclose the type of instruments that give rise to credit risk
    -Accounts receivables
    -Loans
    -Derivatives
-Processes for managing risk
    -Dealing with high credit quality Australian financial institutions
    -Customers with good credit history; credit limits; cash
    settlements
    -Financial guarantees subject to specific board approval
    -Credit risk insurance policy
    -Summaries of aging profile of each key customers
    - Diversify operations to avoid excessive concentrations of risk
                   AASB 7 Financial Instruments: Disclosure


Summary Quantitative Data - AASB
7.34

The maximum exposure to credit risk for Residential Mortgages
at balance date by geographic region

NSW                     XXXX
Vic                     XXXX
Qld                     XXXX
Other                   XXXX
                        XXXX
The ADI’s most significant customer, located in
AASB 7.34(c)
                 AASB 7 Financial Instruments: Disclosure


Summary Quantitative Data - AASB
7.34
The maximum exposure to credit risk for Loans
receivables at balance date by type of type of customer

Households                  XXXX
Commercial                  XXXX
                            XXXX
The ADI’s most significant customer, a household
customer, accounts for $ XXXX of loans at 31 Dec X7
               AASB 7 Financial Instruments: Disclosure


Disclosures – Credit Risk
7.36(a)
 An entity shall disclose by class of financial
    instrument:
 (a)The amount that best represents its maximum
    exposure to credit risk at the reporting date
    without taking account of any collateral held or
    other credit enhancements

 *** includes guarantees and loan commitments
    - disclose full amount
                  AASB 7 Financial Instruments: Disclosure


Disclosures – Credit Risk
7.36(a)
Maximum exposure
    • gross carrying amount less any recognised
      impairment losses
Derivatives
    • FV = Carrying Amount
Financial guarantees
    • maximum amount entity would be required to pay
      if guarantee called on (could be more than
      recognised)
Loan commitments
    • full amount of commitments if loan cannot be
      settled net (could be more than recognised)
               AASB 7 Financial Instruments: Disclosure


Disclosures – Credit Risk
7.36(b)
 An entity shall disclose by class of financial
    instrument:
 (b) In respect of amounts disclosed in (a) a
    description of collateral held as security and other
    credit enhancements
                AASB 7 Financial Instruments: Disclosure


Disclosures – Credit Risk
7.36(c)
Disclose information by class about the credit
   quality of financial assets that are neither past
   due nor impaired - 36(c) (BY CLASS)
 - analysis of credit exposures using an external or
   internal credit grading system
- the nature of the counter party
- historical information about counterparty default
   rates
              AASB 7 Financial Instruments: Disclosure


Disclosures – Credit Risk
7.36
 DISCLOSE BY CLASS:
 The carrying amount of financial assets that would
   otherwise be past due or impaired whose terms
   have been renegotiated - 36(d)
 e.g. where dates or amount for repayment of a loan
   has been changed, the AGR were for $150, but
   now it has been lowered to $30 – extending the
   period of repayment
                  AASB 7 Financial Instruments: Disclosure


  Disclosures – Credit Risk
  7.37
Financial assets that are neither past due nor impaired
 - Disclose information about the credit quality
Financial assets where terms have been negotiated that
   would otherwise be past due or impaired
- Disclose the carrying amount where the terms have been
   renegotiated
Financial assets that are past due or impaired
- Disclose age analysis (next slide)
- Analysis of assets that are individually determined to be
   impaired and the factors
- Description of collateral held
                            AASB 7 Financial Instruments: Disclosure


  Credit Risk - Financial assets that
  are past due or impaired 7.37
                         2007                             2006
                 Total      Amount     Amount    Total        Amount       Amount
                           Impaired     not                  Impaired       not
                                      impaired                            impaired
Not past due     5,000           -     5,000     4,500                     4,500

Past due 30      4,000           -     4,000     4,200                     4,200
days
Past due 30-     3,000          500    2,500     2,500            600      1,900
45 days
Past due 45-     2,000      1,000      1,000     1,300            500       800
60 days
TOTAL           14,000      1,500      12,500    12,500          11,000    11,400



  • What       time bands to use?
                   AASB 7 Financial Instruments: Disclosure

Credit Risk – Collateral and other
credit enhancements obtained
7.38
When an entity obtains financial or non-financial assets
   during the period by taking possession of collateral it
   holds as security or calling on other credit
   enhancements (eg guarantees) and such assets meet
   the recognition criteria in other Standards, an entity shall
   disclose:
a) The nature and carrying amount of the assets obtained;
   and
b) When the assets are not readily convertible into cash,
   policies for disposing of such asset or for using them in
   its operations
   AASB 7 Financial Instruments: Disclosure




LIQUDITIY RISK
                   AASB 7 Financial Instruments: Disclosure

Liquidity risk


• Qualitative information
  • How it arises
  • Processes for managing liquidity risk
• Maturity analysis for financial liabilities that
  shows remaining contractual maturities (next
  slide)
• Description of how the entity manages the
  liquidity risk inherent in the maturity analysis.
• Concentration of risk
                           AASB 7 Financial Instruments: Disclosure

 Maturity Analysis
Financial Liabilities   Carrying   Contractual    < 6 mths     6- 12       1-3        >3
                        Amount     Cash flows                  mths        years      years

Non-derivatives
Bank loans               (7,500)        (8,000)      (1,500)   (1,500)      (5,000)
Trade Creditors          (5,000)        (5,000)      (4,000)   (1,000)
Member deposits          (5,990)        (7,500)        (750)     (750)      (3,000)    (3,000)

Bank overdrafts         (10,000)       (10,000)     (10,000)
Convertible notes        (3,520)        (5,000)                                        (5,000)
Redeemable               (4,580)        (6,000)                                        (6,000)
preference shares
Derivatives
Interest rate swaps         (40)           (50)         100            -       (50)      (100)
Forward Exchange         (2,500)      (500,000)    (500,000)
contracts
TOTAL                   (39,130)      (541,550)    (516,150)   (3,250)      (8,050)   (14,100)
  AASB 7 Financial Instruments: Disclosure




MARKET RISK
                 AASB 7 Financial Instruments: Disclosure



Market Risk - Sensitivity Analysis

Shall disclose
(a) A sensitivity analysis for each type of market
    risk to which the entity is exposed at the
    reporting date, showing how profit or loss and
    equity would have been affected by changes
    in the relevant risk variable that were
    reasonably possible at that date
(b) The methods and assumptions used in
    preparing the sensitivity analysis
(c) Any changes from the previous period and
    reasons for changes
                  AASB 7 Financial Instruments: Disclosure



 Market Risk - Sensitivity Analysis

Examples of market risk having impact on P/L
• Floating rate debt instruments (including loans)
• Derivatives
• Financial instruments that are designated as at FV through
   P/L (including held for trading financial instruments)
• Fixed rate debt instruments that are hedged items in
   qualifying FV hedges of interest rate risk
                    AASB 7 Financial Instruments: Disclosure



    Market Risk - Sensitivity Analysis

Examples of market risk having impact on equity
• Equity securities held as available for sale

•    Derivatives and embedded derivatives
     designated as effective hedging instruments in
     a CF hedge or a hedge of a net investment in
     foreign operations

•    Debt securities classified as AFS
                 AASB 7 Financial Instruments: Disclosure



Market Risk - Sensitivity Analysis

Market risks comprises of
- Currency risks – N/A to most ADI’s
- Interest rate risk
- Other price risk

   Qualitative risk disclosures required for each
   type of risk
   i.e. disclose how each type of market risk
   arises and the processes for managing risk
                          AASB 7 Financial Instruments: Disclosure


Summary Quantitative Data AASB 7.34


                      Weighted        < 6 mths   6- 12     1-3 years   > 3 years
                      Average                    mths
                      Interest rate


Floating interest     6.75%           300,000    300,000   1,200,000   5,000,000
rate loan
Fixed interest rate   6.5%            500,000    500,000   2,000,000   5,000,000
loan
                 AASB 7 Financial Instruments: Disclosure

Summary Quantitative Data AASB 7.34


 The group’s exposure to equity price risk

                           ASX      Total
 Listed Shares             XXX     XXX

 The group’s most significant holding is in the mining
   sector which accounts for 60% of its total
   investments in ASX listed shares.
                AASB 7 Financial Instruments: Disclosure


Value at Risk

•   If an entity prepares a sensitivity analysis, such
    as VAR, that reflects interdependencies between
    risk variables (e.g. interest rates and exchange
    rates) and uses it to manage financial risks, it
    may use that sensitivity analysis in place of the
    analysis specified in para 40.
              AASB 7 Financial Instruments: Disclosure


Value at Risk

The entity shall disclose
  • Explanation of the method used
     • Delta-normal variance-covariance
         approach
     • Historical simulation
     • Monte Carlo simulation
              AASB 7 Financial Instruments: Disclosure


Value at Risk

  The entity shall disclose
  • Main parameters and assumptions underlying
     the data provided
    • Holding period (1 day, 10 days, 1 year)
    • Confidence interval (99%, 95%, 90%)
    • Historical observation period
    • Weightings assigned to the observations
    • Which volatilities and correlations are used
  • Explanation of the objectives of the method
     use and limitations
       AASB 7 Financial Instruments: Disclosure




AASB 101
CAPITAL
MANAGEMENT
                AASB 7 Financial Instruments: Disclosure


AASB 101 : Capital Management
Disclosures

• Qualitative information, including:
  • What is capital
  • How objectives for managing capital are
    met
  • The nature of any externally imposed
    capital requirements
  • How those requirements are
    incorporated into the management of
    capital
• Quantitative data
  AASB 7 Financial Instruments: Disclosure


Significance of           Nature and
Financial
Instruments               Extent of Risks

AASB 7.8-30

                     Credit     Liquidity    Market


                  Qualitative               Quantitative
                  AASB 7.33                 AASB 7.34-42
         AASB 7 Financial Instruments: Disclosure




REVISED AASB 101 “PRESENTATION OF
      FINANCIAL STATEMENTS”
          JANUARY 2007
                 AASB 7 Financial Instruments: Disclosure


Revised AASB 101 for 1 January
2007

• Effective Date for periods commencing on or
  after 1 January 2007

• Applies to all GPFRS and all Corps Act
  entities (including SPFR)

• Changes relate mainly to ED 148 – deletion
  of certain additional “Aus” disclosures
                 AASB 7 Financial Instruments: Disclosure

 Revised AASB 101 for 1 January 2007 –
 Additional AASB text now removed

• Aus 68.1 – remove requirement to show retained earnings
  on face of balance sheet

• Removed Example Income Statements, Balance Sheets
  and Statement of Changes in Equity Formats in Appendix
  to AASB 101

• Deleted Aus 69.1, 83.1 and 97.1 which encouraged entities
  to use the formats set out in Appendices
               AASB 7 Financial Instruments: Disclosure


Revised AASB 101 for 1 January 2007 –
Additional AASB text now removed

• No more economic dependency disclosures
  - significant volume of revenue; or
  - financial support

  • Removed Appendix – Illustrative Financial Report
    Structures

				
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