IFRS 7 financial instruments disclosures

IFRS 7 requires every IFRS reporter to explain the credit, liquidity and market risks arising from its financial instruments, both in words and in numbers, including expected credit loss reconciliations, a contractual maturity analysis and a sensitivity analysis for each type of market risk. FRS 102 asks for these detailed risk disclosures only from financial institutions; other FRS 102 companies give a lighter set focused on the significance of their instruments and their key terms.

Who has to give IFRS 7 risk disclosures?

Any entity preparing IFRS accounts that holds financial instruments, which in practice means almost every company with cash, receivables, loans or payables. A company with only trade balances and an overdraft will have short notes; a lender will have pages of tables.

Subsidiaries using FRS 101 can take an exemption from IFRS 7 under paragraph 8(d), provided equivalent disclosures are included in the consolidated financial statements of the group. Paragraph 7 of FRS 101 removes that exemption for a qualifying entity that is a financial institution, which must still give IFRS 7 in its own accounts. The choice between frameworks for subsidiaries is covered on our page on FRS 101 or FRS 102 for a subsidiary.

What is the general framework for the risk note?

Paragraph 31 requires information that lets users evaluate the nature and extent of risks from financial instruments at the reporting date, and paragraph 32 says these typically include credit risk, liquidity risk and market risk. For each type of risk the entity must disclose:

• Qualitative information (paragraph 33): 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.
• Quantitative information (paragraph 34): summary data based on what is provided internally to key management personnel, such as the board or chief executive, plus the specific disclosures in paragraphs 35A to 42 to the extent not already covered, plus concentrations of risk where not otherwise apparent.

The starting point is the information the board actually uses, not a generic template. If the year end figures are unrepresentative of exposure during the year, paragraph 35 requires further, representative information.

What credit risk disclosures are required?

IFRS 7 defines credit risk as the risk that one party to a financial instrument will cause a financial loss for the other by failing to discharge an obligation. For instruments within the IFRS 9 impairment model, paragraphs 35A to 35N apply, and paragraph 35B sets three objectives: explain credit risk management practices and how they relate to expected credit losses, let users evaluate the amounts arising from expected credit losses and why they changed, and show the credit risk exposure, including significant concentrations.

The main requirements are:

• how the entity decides whether credit risk has increased significantly, and the inputs, assumptions and estimation techniques used (paragraphs 35F and 35G);
• a table reconciling the opening and closing loss allowance by class, split between 12 month expected credit losses, lifetime losses on assets with significantly increased credit risk, credit impaired assets, and trade receivables, contract assets or lease receivables on the simplified approach (paragraph 35H);
• the contractual amount outstanding on assets written off in the period that are still subject to enforcement activity (paragraph 35L); and
• gross carrying amounts by credit risk rating grade for each of those stages (paragraph 35M). For trade receivables on the simplified approach, a provision matrix may be used instead (paragraph 35N).

For instruments outside the IFRS 9 impairment model, paragraph 36 requires the maximum exposure to credit risk where the carrying amount does not already represent it, and a description of collateral and other credit enhancements and their financial effect. Paragraph 38 covers assets obtained by taking possession of collateral. The measurement behind these figures is covered on our page on IFRS 9 expected credit losses.

What liquidity risk disclosures are required?

Liquidity risk is the risk that an entity will have difficulty meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Paragraph 39 requires:

1. a maturity analysis of non derivative financial liabilities, including issued financial guarantee contracts, showing remaining contractual maturities;
2. a maturity analysis for derivative financial liabilities, with contractual maturities where they are essential to understanding the timing of cash flows; and
3. a description of how liquidity risk is managed.

The amounts in the maturity analysis are contractual undiscounted cash flows (paragraph B11D), so they will not agree to the balance sheet for interest bearing debt. The entity chooses its time bands; paragraph B11 gives an example of not later than one month, one to three months, three months to one year, and one to five years.

In a December 2020 agenda decision on reverse factoring, the IFRS Interpretations Committee observed that such arrangements often give rise to liquidity risk, for example by concentrating liabilities with one financial institution, and pointed to paragraphs 33 to 35, 39 and B11F as the basis for disclosure.

What market risk disclosures are required?

Market risk is the risk that fair value or future cash flows will fluctuate because of changes in market prices, and IFRS 7 splits it into currency risk, interest rate risk and other price risk. Paragraph 40 requires, for each type of market risk at the reporting date:

• a sensitivity analysis showing how profit or loss and equity would have been affected by reasonably possible changes in the relevant risk variable;
• the methods and assumptions used; and
• changes in methods and assumptions from the previous period, with reasons.

An entity that manages risk using a sensitivity analysis reflecting interdependencies between variables, such as value at risk, may disclose that instead, with an explanation of the method, parameters, objective and limitations (paragraph 41). If the sensitivity analysis is unrepresentative of the risk during the year, paragraph 42 requires that fact and the reason to be stated.

What does a simple risk note look like?

Illustration only. A UK listed manufacturer has trade payables of 4 million pounds due within one month and a 10 million pound bank loan at a floating rate, repayable in three years, with interest of about 0.6 million pounds a year.

Contractual cash flows	Up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years
Trade payables	4.0m	0	0	0
Bank loan, principal and interest	0	0.15m	0.45m	11.2m

The market risk note might state that a one percentage point rise in the reference rate, judged reasonably possible at the year end, would reduce profit before tax and equity by about 0.1 million pounds, explaining the assumptions.

Is anything new for 2026?

The May 2024 amendments to IFRS 9 and IFRS 7 added paragraphs 20B to 20D of IFRS 7, applying with the IFRS 9 amendments for annual reporting periods beginning on or after 1 January 2026. For classes of financial assets at amortised cost or fair value through other comprehensive income, and financial liabilities at amortised cost, an entity must describe contractual terms that could change cash flows on a contingent event not directly related to basic lending risks and costs, give quantitative information on the possible changes, and disclose the carrying amounts affected. Paragraph 20D gives the example of a loan whose cash flows change if the borrower reduces its carbon emissions. The classification side is covered on our page on IFRS 9 classification of financial assets.

How does FRS 102 differ?

For most companies FRS 102 is much lighter. Paragraph 11.42 requires information to evaluate the significance of financial instruments for financial position and performance, such as the interest rate, maturity, repayment schedule and restrictions of long term debt. Where risks from financial instruments are particularly significant, for example because they are principal risks, additional disclosure may be required, and paragraph 11.42 points to the financial institution requirements as examples. Paragraph 11.47 covers loan defaults and breaches not remedied by the reporting date.

The detailed risk tables arrive only for financial institutions. Paragraph 34.17 requires them in the individual accounts of a financial institution, and in group accounts where instruments held by a financial institution in the group are material to the group. Paragraphs 34.23 to 34.30 then mirror IFRS 7 in shorter form: qualitative risk information, credit risk exposure, a maturity analysis at undiscounted amounts with lease liabilities shown separately, and a sensitivity analysis for each type of market risk, with value at risk allowed instead.

There is one route by which a non financial FRS 102 company gives risk information. Paragraph 11.48A(f), which implements company law, requires information on the nature and extent of credit, liquidity and market risk for instruments measured at fair value through profit or loss, other than trading liabilities and derivative liabilities. Qualifying subsidiaries can use the reduced disclosure framework in paragraph 1.12(c) to drop several Section 11 disclosures where equivalents appear in the group accounts. The general notes structure is covered on our page on FRS 102 notes to the accounts.

What are the common mistakes?

• Showing discounted carrying amounts in the maturity analysis instead of contractual undiscounted cash flows.
• Generic risk wording that does not match how the board actually monitors risk, contrary to the management approach in paragraph 34.
• Sensitivity analyses using changes that are not reasonably possible, or that omit the effect on equity.
• Omitting concentrations, such as one dominant customer or one lender.
• Assuming an FRS 101 subsidiary that is a financial institution can drop IFRS 7.

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Related Accountapedia entries

• Loans and financial instruments under FRS 105
• FRS 102 Section 12: other financial instruments
• FRS 102 Section 11: basic financial instruments
• Climate related financial disclosures for companies
• IFRS 9 classification of financial assets

Sources

• Financial Reporting Council: FRS 101 September 2024 lyJ0Tow
• IFRS Foundation: Ifrs7
• Financial Reporting Council: FRS 102 September 2024 tmKYWO6

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.