The first time Ind AS adopters are having a nerve racking time in getting the pieces together for risk disclosures. The quintessential Ind AS 107 mandates disclosures which will aid the financial statement users to evaluate the nature and extent of risks arising from financial instruments and how the company manages those risks.
Like the other financial instruments standards, scope of Ind AS 107 specifies that the standard applies to ALL the entities. So the myth that risk is for the financial services entities only has to disappear sooner. This disclosure standard merely sets out the amount of information reported to the management for the purpose of running the business which must be made available to the users.
Risk Disclosures of two types are required:
§ Qualitative disclosures: Company has to provide a brief explanation of the their exposure to risk, how they arise and how these risks are measured and managed
§ Quantitative disclosures:
o Credit risk/ Counter party risk – with information about age of the assets where the counter party has defaulted and the collateral held by the company
o Liquidity risk – categorize the financial liabilities in maturity buckets
o Market risk – split between Currency risk, Interest rate risk and Price risk. A sensitivity analysis must be provided for each type of risk where the effect of let’s say a 1% shift (up/down) in the currencies/ interest rate/ prices on profit or loss and equity
Happy Disclosing!!
Like the other financial instruments standards, scope of Ind AS 107 specifies that the standard applies to ALL the entities. So the myth that risk is for the financial services entities only has to disappear sooner. This disclosure standard merely sets out the amount of information reported to the management for the purpose of running the business which must be made available to the users.
Risk Disclosures of two types are required:
§ Qualitative disclosures: Company has to provide a brief explanation of the their exposure to risk, how they arise and how these risks are measured and managed
§ Quantitative disclosures:
o Credit risk/ Counter party risk – with information about age of the assets where the counter party has defaulted and the collateral held by the company
o Liquidity risk – categorize the financial liabilities in maturity buckets
o Market risk – split between Currency risk, Interest rate risk and Price risk. A sensitivity analysis must be provided for each type of risk where the effect of let’s say a 1% shift (up/down) in the currencies/ interest rate/ prices on profit or loss and equity
Happy Disclosing!!
