International

Do you agree with the proposal in paragraph 27A to require entities to disclose the fair value of financial instruments using a fair value hierarchy? If not, why?

We agree with the proposal to require entities to disclose the fair value of financial instruments using a fair value hierarchy.

This amendment would increase the convergence of IFRSs and US GAAP, improve comparability between entities about the effects of fair value measurements, and provide information on the relative objectivity of inputs used in valuing financial instruments.

Question 2

Do you agree with the three-level fair value hierarchy as set out in paragraph 27A? If not, why? What would you propose instead, and why?

We agree with the three-level fair value hierarchy as set out in paragraph 27A.

We agree with the proposal to use terminology from IAS 39 rather than to reproduce exactly the wording used in SFAS 157. Whilst a difference in terminology may give rise to a risk of inconsistency of practice between an entity reporting under IFRSs and one reporting under US GAAP, we consider this risk to be outweighed by the difficulties which may emerge through the use of terminology which is inconsistent with that used elsewhere within the IFRS framework.

It should be made clear that this three-level hierarchy should be based on the methodology used in accordance with IAS 39: 48 to 49 and AG 69 to 82.

Question 3

Do you agree with the proposals in:

(a) paragraph 27B to require expanded disclosures about the fair value measurements recognised in the statement of financial position? If not, why? What would you propose instead, and why?

(b) paragraph 27C to require entities to classify, by level of the fair value hierarchy, the disclosures about the fair value of the financial instruments that are not measured at fair value? If not, why? What would you propose instead, and why?

We agree with the proposals in paragraph 27B requiring expanded disclosures about the fair value measurements recognised in the statement of financial position.

We question why it is necessary to define significance in paragraph 27B(d) when it is not defined elsewhere. If the term is to be used consistently between different standards it should be included within IAS 1, as is materiality. We also believe it would be preferable to refer to materiality, e.g. “...if changing one or more of those inputs to reasonably possible alternative assumptions would effect fair value materially, the entity shall state that fact and disclose the effect of those changes for each class of financial instrument.”.

We also consider the guidance “an entity shall provide the information required by this paragraph in tabular format unless another format is more appropriate” to be unnecessary.

Paragraph 27B(c) refers to the total amount of unrealised gains or losses. IFRS do not contain a definition of realised or unrealised. The absence of such a definition, or guidance on what is meant by this term, may lead to different interpretations being taken in different jurisdictions. For example in the USA, Concept Statement 5 considers the meaning of realised and realisable. In the UK, the relevant guidance is TECH 01/2008 issued by the ICAEW/ICAS.

We agree in principal with the requirement in paragraph 27C to disclose the fair value of financial instruments that are not measured at fair value in the statement of financial position. However, we feel that it would be beneficial to include additional guidance and/or examples of the types of financial instrument which might fall into each level of the hierarchy. SFAS 157 includes some additional guidance in paragraphs 22 and 23 as well as in Appendix A. Such additional guidance would be of particular benefit to smaller, non-financial sector, entities.


Liquidity risk disclosures

Question 4

Do you agree with the proposal in paragraph 39(a) to require entities to disclose a maturity analysis for derivative financial liabilities based on how the entity manages the liquidity risk associated with such instruments? If not, why? What would you propose instead, and why?

We agree with the proposal to require entities to disclose a maturity analysis for derivative financial liabilities based on how the entity manages the liquidity risk associated with such instruments. However, the guidance does not make clear that, like the maturity analysis for non-derivative liabilities, the cash flows included should be undiscounted.

Question 5

Do you agree with the proposal in paragraph 39(b) to require entities to disclose a maturity analysis for non-derivative financial liabilities based on remaining expected maturities if the entity manages the liquidity risk associated with such instruments on the basis of expected maturities? If not, why? What would you propose instead, and why?

We agree with the proposal to require entities to disclose a maturity analysis for non-derivative financial liabilities based on expected maturities, in addition to contractual maturities, if this how the entity manages the liquidity risk associated such instruments.

Question 6

Do you agree with the amended definition of liquidity risk in Appendix A? If not, how would you define liquidity risk, and why?

We agree with the proposed amendment to the definition of liquidity risk to exclude financial liabilities which will be settled in an entity’s own equity instruments and to financial liabilities in the scope of IFRS 7 that are settled with non-financial assets.

Question 7

Do you agree with the proposed effective date? If not, why? What would you propose instead, and why?

We agree with the proposed effective date.

Question 8

Are the transition requirements appropriate? If not, why? What would you propose instead, and why?

We agree with the proposed transitional requirements.


Other comments

1. Paragraph B11C – We consider the wording “…(including financial instruments that would meet the definition of a derivative financial liability if they were recognised)…” to be unnecessary as this is already explicit in the wording of IFRS 7.4.

2. Paragraph B16 – We disagree with the proposed deletion of paragraph B16. We consider this paragraph to be useful in providing clarity in respect of the basis on which the maturity analysis is drafted.

3. Paragraph IG13A – This paragraph provides an illustrative example of a table that meets the requirements of paragraph 27B(a). This illustrative example analyses financial instruments by IAS 39 category rather than by class (as required by the proposed amendment). Although it is possible that an entity may determine its classes of financial instrument to be the same as their IAS 39 category, in our experience this is rare. In our view the illustrative example should use different classes of financial instrument.

4. Paragraph IG13B – This paragraph provides an illustrative example of a table that meets the requirements of paragraph 27B(b). Like the table in paragraph IG13A, this illustrative example analyses financial instruments by IAS 39 category rather than by class. In our view the illustrative example should use different classes of financial instrument.


We hope that you will find our comments and observations helpful. If you would like to discuss any of them further, please contact either Helen Thomson at + 32 2 778 0130 or Andrew Buchanan at +44 (0)20 7893 3300.

Yours faithfully,

BDO Global Coordination B.V.


¹BDO International is a world wide network of public accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is an independent legal entity in its own country.

The network is coordinated by BDO Global Coordination B.V., incorporated in the Netherlands, with an office in Brussels, Belgium, where the International Executive Office is located.

ED Improving Disc about Fin Inst-Prop amend to IFRS 7.pdf