CFA Institute study on user perspectives on IFRS 7 disclosures

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02 Nov 2011

The CFA Institute, a global association of investment professionals, has published a report entitled User Perspectives on Financial Instrument Risk Disclosures under IFRS (Part 1), providing user insights and recommendations regarding risk disclosures under IFRS 7 'Financial Instruments: Disclosures'.

The CFA Institute undertook a study regarding the quality of existing financial instruments risk disclosures, addressing credit, liquidity, market and hedging activities risk disclosures under IFRS 7. The report proposes general and specific recommendations for improving these risk disclosures, including:

  • Executive summary. An 'Executive Summary' of risk disclosures should be provided outlining details of entity-wide risk exposure and effectiveness of risk management mechanisms across different risk types considered to be significant for specific business models
  • Differentiated market risk categories. The components of market risk should be differentiated into more specific categories (i.e. interest rate, foreign currency and commodity) and treated with the same level of distinctiveness for reporting purposes as is the case with credit and liquidity risk under IFRS 7
  • Improved alignment of qualitative and quantitative disclosures. Qualitative disclosures should better explain quantitative measurements
  • Standardisation and assurance of quantitative disclosures. Standardised and adequately audited quantitative disclosures are required to improve comparability
  • Improved and integrated presentation of disclosures. Integrated, centralised and tabular risk disclosures should be provided. For example, the report recommends disclosure of: a) the integration of risk exposure and risk management information; and b) interaction of different risk factors
  • Areas for improvement of specific risk disclosures. These include the need to provide: a) informative entity-specific qualitative disclosures; b) improved and more meaningful sensitivity analysis; c) sufficient disaggregation to inform on respective risk exposures; d) full disclosure of risks associated with counterparties; and e) risk information related to off-balance sheet exposures
  • Communication and not mere compliance. The report states "a principles-based definition of disclosure is not the antidote to fears about boilerplate and uninformative disclosures".

Part 2 of the report will be released at a later time and will provide a user perspective on the disclosures of derivatives and hedging activities.

Click for access to the report (link to CFA Institute website).

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