IFRS 7: Financial instruments: disclosures

The International Accounting Standards Board (IASB) released International Financial Reporting Standard 7 (IFRS 7) to address the topic of disclosures required for financial instruments.

The notes to the financial statement are highly important for investors due to the complexity of the various accounting conventions available to be used, complex financial instruments, and a variety of facts and circumstances in which may relate to a company. Not all pertinent information is able to be disclosed on the face of the financial statements due to the lack of space to include this information. Because of this and the reasons given above, the IASB defined standards for what type of information must be included in the note disclosures to the financial statements regarding financial instruments.

Many accountants, and users of financial statements in general, will tell you that the notes to the financial statements will provide you a much higher quality picture of a company than the actual financial statements themselves. Financial statements can sometimes generalize a part of the business in the consolidation of line items, when the notes go into more specifics and break out in more detail how these balances were arrived at. The notes have added requirements for disclosure of the breakdown of a balance as well, which can be instrumental in understanding true valuations.

IFRS are principles based standards, rather than strict rules based standards that govern international accounting. IFRS standards differ from IAS standards in that they began being introduced in 2001, whereas IAS were produced prior to this date by the IASC, or the International Accounting Standards Committee. Therefore when an IFRS standard and an IAS standard conflict, the IFRS is generally more authoritative due to being more recent.

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