IFRS 7 Financial Instruments: Disclosures sets out what an entity discloses about its financial instruments. Its objective is disclosures that enable users of the financial statements to evaluate two things: the significance of financial instruments for the entity's financial position and performance, and the nature and extent of the risks arising from them during the period and at the reporting date, and how the entity manages those risks (IFRS 7.1). It complements the recognition, measurement and presentation principles in IFRS 9 and IAS 32 (IFRS 7.2). It is not only for financial institutions: a manufacturer whose only financial instruments are cash, receivables and payables applies it too (IFRS Foundation: IFRS 7).
Scope and level of detail
IFRS 7 applies to all types of financial instruments, both recognised and unrecognised (IFRS 7.3, 4), with exceptions that include (IFRS 7.3):
- interests in subsidiaries, associates and joint ventures accounted for under IFRS 10, IAS 27 or IAS 28;
- employers' rights and obligations under employee benefit plans (IAS 19);
- insurance contracts within IFRS 17, with exceptions, such as financial guarantee contracts to which the issuer applies IFRS 9; and
- share-based payment transactions within IFRS 2, except contracts within the scope of IFRS 9.
Where the Standard requires disclosure "by class", instruments are grouped into classes that suit the nature of the information and the characteristics of the instruments, with enough information to reconcile to the line items in the statement of financial position (IFRS 7.6). How much detail to give is a matter of judgement: neither overburdening the statements with unhelpful detail nor aggregating so much that important differences are obscured (IFRS 7.B3).
Part 1: significance for financial position and performance
The entity discloses information that enables users to evaluate the significance of financial instruments for its financial position and performance (IFRS 7.7). The main requirements are:
- Carrying amounts by measurement category, on the face of the statement of financial position or in the notes: for example, assets at fair value through profit or loss (designated separately from mandatory), assets and liabilities at amortised cost, and assets at fair value through other comprehensive income (IFRS 7.8).
- Income and expense items: net gains or losses for each category, total interest revenue and total interest expense under the effective interest method, and fee income and expense (IFRS 7.20).
- Hedge accounting, for entities that apply it: the risk management strategy, how hedging activities may affect the amount, timing and uncertainty of future cash flows, and the effect of hedge accounting on the statements (IFRS 7.21A).
- Fair value for each class of financial assets and financial liabilities, in a way that permits comparison with the carrying amount (IFRS 7.25). It is not required when the carrying amount is a reasonable approximation of fair value, such as short-term trade receivables and payables, or for lease liabilities (IFRS 7.29). The fair value hierarchy level is disclosed under IFRS 13 (IFRS 13.93, 97).
Part 2: nature and extent of risks
The entity discloses information that enables users to evaluate the nature and extent of the risks arising from its financial instruments at the reporting date. These typically include, but are not limited to, credit risk, liquidity risk and market risk (IFRS 7.31, 32), which the Standard defines as follows (IFRS 7, Appendix A):
| Risk | Definition |
|---|---|
| Credit risk | The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation |
| Liquidity risk | The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset |
| Market risk | The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices; it comprises currency risk, interest rate risk and other price risk |
For each type of risk there are two kinds of disclosure:
- Qualitative: the exposures and how they arise; the objectives, policies and processes for managing the risk and the methods used to measure it; and any changes from the previous period (IFRS 7.33).
- Quantitative: summary data about the exposure at the reporting date based on the information provided internally to key management personnel, such as the board or the chief executive, followed by the specific requirements and any concentrations of risk (IFRS 7.34). A concentration disclosure describes how management determines concentrations, the shared characteristic (such as counterparty, geographical area, currency or market) and the amount of the exposure (IFRS 7.B8).
Credit risk and expected credit losses
Paragraphs 35F–35N apply to instruments within IFRS 9's impairment requirements (IFRS 7.35A). Their objective is to help users understand the effect of credit risk on the amount, timing and uncertainty of future cash flows (IFRS 7.35B). The key requirements are:
- Credit risk management practices: how the entity determines a significant increase in credit risk, its definitions of default, how instruments are grouped for collective measurement, how it determines that an asset is credit-impaired, and its write-off policy (IFRS 7.35F).
- Inputs, assumptions and estimation techniques, including how forward-looking and macroeconomic information is incorporated, and any changes and the reasons for them (IFRS 7.35G).
- A reconciliation of the loss allowance from opening to closing balance, in a table and by class, separating 12-month ECL from lifetime ECL, credit-impaired assets, receivables under the simplified approach and purchased or originated credit-impaired assets (IFRS 7.35H), with an explanation of how significant changes in gross carrying amounts drove the changes in the allowance (IFRS 7.35I).
- Collateral: the maximum exposure to credit risk before collateral, and a description of the collateral held (IFRS 7.35K), plus the contractual amount outstanding on assets written off during the period that are still subject to enforcement activity (IFRS 7.35L).
- Exposure by credit risk rating grade: gross carrying amounts analysed by the basis on which the allowance is measured (IFRS 7.35M). For trade receivables, contract assets and lease receivables under the simplified approach, this information may be based on a provision matrix (IFRS 7.35N).
If you measure the receivables allowance with a matrix, the IFRS 9 expected credit loss provision matrix model produces the note tables: the matrix by ageing band and the movement in the allowance. The measurement itself is explained in IFRS 9 Financial Instruments.
Liquidity risk
The entity discloses a maturity analysis for non-derivative financial liabilities (including issued financial guarantee contracts) showing the remaining contractual maturities, a maturity analysis for derivative financial liabilities where contractual maturities are essential to understanding the timing of cash flows, and a description of how it manages liquidity risk (IFRS 7.39). In particular:
- Time bands are a matter of judgement. The Standard's examples are: not later than one month; one to three months; three months to one year; and one to five years (IFRS 7.B11).
- The amounts are contractual undiscounted cash flows, so they differ from the amounts in the statement of financial position. Where an amount is not fixed, it is determined by reference to conditions at the end of the reporting period (IFRS 7.B11D).
- The description of liquidity management may cover committed borrowing facilities, diversity of funding sources, accelerated repayment terms and access to supplier finance arrangements (IFRS 7.B11F).
Market risk
The entity discloses a sensitivity analysis for each type of market risk, showing how profit or loss and equity would have been affected by reasonably possible changes in the relevant risk variable, together with the methods and assumptions used and changes in them (IFRS 7.40). Alternatively, an entity that manages financial risks using an analysis that reflects interdependencies between risk variables, such as value-at-risk, may disclose that instead (IFRS 7.41). Other price risk arises, for example, from changes in commodity prices or equity prices (IFRS 7.B25). If the analysis is unrepresentative, for example because the year-end exposure differs from the exposure during the year, the entity discloses that fact and the reason (IFRS 7.42).
Illustrative example: maturity and sensitivity analysis
An entity has trade payables of 600,000 (400,000 due within one month and 200,000 within one to three months) and a bank loan of 2,000,000 at a variable rate that is 6% at the reporting date. Interest is paid quarterly and the principal is repaid in four equal annual instalments of 500,000; the first interest payment falls due three months, and the first instalment twelve months, after the reporting date. The figures are illustrative, and future interest is calculated at the rate prevailing at the end of the period (IFRS 7.B11D):
| Liability | Up to 1 month | 1–3 months | 3–12 months | 1–5 years | Undiscounted cash flows | Carrying amount |
|---|---|---|---|---|---|---|
| Trade payables | 400,000 | 200,000 | – | – | 600,000 | 600,000 |
| Bank loan | – | 30,000 | 590,000 | 1,680,000 | 2,300,000 | 2,000,000 |
| Total | 400,000 | 230,000 | 590,000 | 1,680,000 | 2,900,000 | 2,600,000 |
The loan's undiscounted total (2,300,000) exceeds its carrying amount by the future interest (300,000). For the sensitivity analysis, if management judges a 100 basis point change in interest rates reasonably possible, an increase would raise annual interest expense on the current balance by 20,000 (2,000,000 × 1%) and reduce profit before tax by the same amount; a decrease would have the opposite effect.
Transfers of financial assets
These disclosures are presented in a single note, for all transferred financial assets that are not derecognised and for any continuing involvement in a transferred asset existing at the reporting date (IFRS 7.42A). Their objective is to help users understand the relationship between transferred assets that are not derecognised in their entirety and the associated liabilities, and to evaluate the nature of, and risks associated with, continuing involvement in derecognised assets (IFRS 7.42B). For the first group the entity discloses, among other things, the nature of the assets and the risks and rewards to which it remains exposed (IFRS 7.42D); for the second, the carrying amount and fair value of the continuing involvement and the maximum exposure to loss (IFRS 7.42E).
A practical checklist
| Area | What to disclose | Paragraphs |
|---|---|---|
| Categories | Carrying amount of each measurement category | 8 |
| Income and expense | Net gains and losses by category, interest and fees | 20 |
| Fair value | Fair value by class compared with carrying amount, unless exempt | 25, 29 |
| Risks in general | Qualitative disclosures, quantitative data as reported to management, concentrations | 33, 34, B8 |
| Credit risk | Practices, assumptions, allowance reconciliation, exposure by rating grade | 35F–35N |
| Liquidity risk | Maturity analysis of undiscounted cash flows and how liquidity is managed | 39, B11D |
| Market risk | Sensitivity analysis for each type | 40–42 |
| Transfers | Transferred assets and continuing involvement | 42A–42H |
| Hedge accounting | Strategy and effects on the statements | 21A |
What has changed in IFRS 7?
- Supplier finance arrangements (May 2023). Added disclosures to IAS 7 on the terms of these arrangements, the carrying amounts of the liabilities that are part of them and the portion already paid to suppliers by finance providers, the ranges of payment due dates, and the type and effect of non-cash changes in those carrying amounts (IAS 7.44F, 44G, 44H), and added them to the liquidity risk factors in IFRS 7 (IFRS 7.B11F). Effective for annual periods beginning on or after 1 January 2024 (IFRS Foundation news release).
- Classification and measurement amendments (May 2024). Added disclosures about investments in equity instruments designated at fair value through other comprehensive income and about instruments with contingent features, such as ESG-linked features. Effective for annual periods beginning on or after 1 January 2026 (IFRS Foundation news release).
- Annual Improvements—Volume 11 (July 2024). Amended IFRS 7 on "gain or loss on derecognition", and its implementation guidance on the introduction, credit risk disclosures and the deferred difference between fair value and transaction price. Effective for annual periods beginning on or after 1 January 2026 (IFRS Foundation news release).
- Contracts Referencing Nature-dependent Electricity (December 2024). A single note on these contracts covering the features that create exposure, estimated cash flows for buying electricity under unrecognised commitments, and effects on performance such as the cost of purchased electricity that went unused and the proceeds from selling it. Effective for annual periods beginning on or after 1 January 2026 (amendment text).
- IFRS 18 (April 2024). Carried over from IAS 1 into IFRS 7 the disclosures on puttable instruments classified as equity and on instruments reclassified between financial liabilities and equity, for annual periods beginning on or after 1 January 2027 (IFRS Foundation: IFRS 7).
- IFRS 19 (May 2024). Permits some subsidiaries without public accountability to apply reduced disclosures in place of the disclosure requirements in other Standards, for annual periods beginning on or after 1 January 2027 (IFRS Foundation: changes in the 2026 edition).
- "Disclosures about Uncertainties in the Financial Statements" examples (November 2025). Illustrative examples accompanying several Standards, including IFRS 7. They are not an integral part of the Standards and have no effective date (changes in the 2026 edition).
How it fits with other Standards
- IFRS 9 Financial Instruments sets the classification, measurement and expected credit losses that IFRS 7 discloses.
- IFRS 13 Fair Value Measurement covers fair value measurement disclosures, including hierarchy levels.
- IAS 7 Statement of Cash Flows is where the supplier finance disclosures sit (see the cash flow statement).
Sources
- IFRS Foundation: IFRS 7 Financial Instruments: Disclosures. References in brackets are to paragraphs of the Standard and its appendices.
- IFRS Foundation: IAS 7 Statement of Cash Flows and IFRS 13 Fair Value Measurement.
- IFRS Foundation: News release on supplier finance arrangements, 25 May 2023.
- IFRS Foundation: News release on the classification and measurement amendments, 30 May 2024.
- IFRS Foundation: News release on Annual Improvements—Volume 11, 18 July 2024.
- IFRS Foundation: Contracts Referencing Nature-dependent Electricity, December 2024.
- IFRS Foundation: Changes in this edition (2026).