FINANCIAL INSTRUMENT

Financial instruments are assets that can be traded. They can also be seen as packages of
capital that may be traded. Most types of financial instruments provide an efficient flow and
transfer of capital all throughout the world's investors. These assets can be cash, a contractual
right to deliver or receive cash or another type of financial instrument, or evidence of one's
ownership of an entity.

According to The Association of Chartered Certified Accountants (ACCA), “A financial

instrument is any contract that gives rise to a financial asset of one entity and a financial liability
or equity instrument of another entity.”

A financial instrument is a
monetary contract between
parties. We can create, trade,
or modify them. We can also
settle them. A financial
instrument may be evidence
of ownership of part of
something, as in stocks and
shares. Bonds, which are
contractual rights to receive
cash, are financial instruments.

CATAGORIES OF FINANCIAL ASSETS

Financial assets refer to assets that arise from contractual agreements on future cash flows
or from owning equity instruments of another entity. Financial instruments refer to a contract
that generates a financial asset to one of the parties involved, and an equity instrument or
financial liability to the other entity. Financial assets can be categorized as either current or non-
current assets on a company’s balance sheet.

Fixed Deposits –
Fixed deposit is the term used in the context of the bank, fixed deposit account gives the
fixed depositor right to have interest along with principal amount on maturity of fixed deposit.
For example if an individual makes a fixed deposit of $100000 with the bank at 8 percent simple
interest for 1 year then on maturity he or she will get $108000, $8000 being the interest on fixed
deposit.

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Equity Shares -
Equity shares gives the shareholder right to have the dividend on profits of the company and
also voting rights. In the case of equity shares they will get dividend only if the company makes
profits and in the case of loss they will not be paid any dividend, also they can sell their shares in
stock market whenever they want to exit the company. Equity shares provide the best
opportunity as far as capital appreciation of capital is concerned.

Preference Shares –
Preference shares gives the preference shareholder right to receive the dividend but they do
not have any voting rights. They receive a fixed rate of dividend whether the company makes
profit or loss and also in the case of winding up of the company they receive payment earlier
than equity shareholders, however the scope of appreciation of capital is not there in case of
preference shares.

Debentures -
There are the debt instruments which are issued by the company giving the debenture holder
the right to have monthly or quarterly interest payment at a fixed date and also principal
repayment on maturity. Payment of interest on debenture is compulsory even if the company
makes loss and debenture holders also get the preference over equity and preference shareholders
in case of winding up of the company.

Life Insurance –
Life insurance policies which pay the insurance holder on maturity can also be categorized
as a financial asset because at the time of maturity these policies pay maturity amount of the
policy. However other insurance policies like health insurance, fire insurance, motor insurance
etc…., cannot be categorized as a financial asset.

Mutual funds –
Mutual funds are those financial institutions that collect money from small investors and
invest money of mutual fund holder in financial markets like equity market, commodity, and
debt market and so on. As far mutual fund holder is concerned they receive units in exchange for
their investment, which can be bought and sold in the market at the market price which changes
daily according to the movement of asset prices in which mutual fund has invested

CLASSIFICATION OF A FINANCIAL INSTRUMENT AS

LIABILITY OR EQUITY

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 When an entity issues a financial instrument, it must determine its classification either as a
liability (debt) or as equity. That determination has an immediate and significant effect on the
entity’s reported results and financial position. Liability classification affects an entity’s gearing
ratios and typically results in any payments being treated as interest and charged to earnings.
Equity classification avoids these impacts but may be perceived negatively by investors if it is
seen as diluting their existing equity interests.

IAS 32 addresses the classification process of financial instrument. Although IAS 32’s
approach is founded upon principles, its outcomes can sometime seem surprising. This is partly
because, unlike previous practice in many jurisdictions around the world, IAS 32 does not look
to the legal form of an instrument. Instead, it focuses on the instrument’s contractual obligations.
Identifying the substance of the relevant obligations can itself be challenging, reflecting the huge
variety of instruments issued by different types of entities around the world. Moreover, these
principles sometime result in instruments that intuitively seem like equity being accounted for as
liabilities. As a result, the IASB has made some amendments to the Standard which depart from
its core principles, further complicating the classification process.

Fortunately the member firms within Grant Thornton International – one of the world’s
leading organizations of independently owned and managed accounting and consulting firms –
have gained extensive insights into the more problematic aspects of debt and equity classification
under IAS 32. Grant Thornton International, through its IFRS team, develops general guidance
that supports its member firms’ commitment to high quality, consistent application of IFRS. A
practical guide to the classification of financial instruments under IAS 32 reflects the collective
experience of Grant Thornton International’s IFRS team and member firm IFRS experts. It
addresses IAS 32’s key application issues and includes interpretational guidance in certain
problematic areas. The second edition of the Guide reflects amendments that have been made to
IAS 32 since the Guide was first published and our latest thinking on some of the more
problematic areas of interpretation. The Guide is organized as follows:

 Section A gives an overview of the Guide

 Section B considers the basic principle of financial liability classification. It discusses
contractual obligations, how they arise and their effects
 Section C looks at those financial instruments which can be settled in an entity’s own
equity instruments and considers whether they should be classified as liabilities or as
equity
 Section D addresses the 2008 amendments to IAS 32 relating to putt able instruments and
obligations arising on liquidation
 Section E discusses compound financial instruments – instruments which possess both
liability and equity components
 Section F considers briefly the IASB’s potential plans for the development of a new
model for liability and equity classification.
 Appendices A and B set out the full definitions of ‘financial liability’ and ‘equity’
respectively.
 Appendices C and D discuss certain specific issues raised in the main body of the Guide
in further detail.

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 COMPOUND FINANCIAL INSTRUMENT
A compound financial instrument is a financial instrument that has the characteristics of
both an equity and liability (debt). An example would be a bond that can be converted into
shares. It doesn't matter whether the bondholders will ultimately opt for conversion. As long as
there is the option to convert into shares, the financial instrument would carry an equity
component.

A compound financial instrument, such as a convertible bond, is split into equity and
liability components. When the instrument is issued, the equity component is measured as the
difference between the fair value of the compound instrument and the fair value of the liability
component.

RECOGNITION AND MEASUREMENT OF

FINANCIAI ASSETS AND LIABILITIES (IAS-39)
The main requirements for the recognition and measurement of financial instruments are:
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 An entity shall category its financial assets into one of the following categories:

 Financial assets at fair value through profit or loss.

This category consists of three sub-categories:

 Financial instruments held for trading.

 Contingent consideration of an acquirer in a business combination to which IFRS 3
business combinations applies.
 Financial instruments designated as at fair value through profit or loss.
 Held to maturity investments
 Loan and receivables, or
 Available for sale financial assets.

Recognition of a financial asset or financial liability is at the point when, and only when the
entity becomes a party to the contractual provisions of the instrument. When a financial asset or
financial liability is recognized initially, an entity shall measure it at its fair value plus, in the
case of a financial asset or financial liability not at fair value through profit or loss, transaction
costs that are directly attributable to the acquisition or issue of the financial asset or financial
liability.

After initial recognition

 Financial assets or financial liabilities at fair value through profit or loss shall be
measured at fair value without any deduction for expected transaction costs on disposal
and the change in fair value is recognized in profit or loss.
 Held to maturity investments are measured at amortized cost using the effective interest
method, with interest and impairment costs being recognized in profit or loss.
 Loans and receivables are measured at amortized cost using the effective interest method,
with interest and impairment costs being recognized in profit or loss.

DERECOGNITION OF FINANCIAL ASSETS AND

LIABILITIES (IAS-39):

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 A financial asset is derecognized (removed from the statement of financial position), when, and only
when, either the contractual rights to the assets cash flows expire, or the asset is transferred and the
transfer qualifies for derecognition.

Derecognition of financial assets and liabilities are the removal of an asset or liability from an
entity's balance sheet. Derecognition questions can arise with respect to all types of assets and liabilities.
This project focuses on financial instruments. Questions regarding derecognition of assets and liabilities
often arise in the context of certain special purpose entities and whether those entities should be included
in a set of consolidated financial statements.

The IASB agreed to consider both a comprehensive project on derecognition or all types of assets
and liabilities and also a separate, narrower scope project that would explore the need to revise guidance
in financial instruments: Recognition and Measurement in the area of derecognition of financial
instruments. This limited scope project would address questions that have arisen with regard to the
application of conflicting aspects of IAS 39's guidance on derecognition. The project would result in an
amendment to IAS 39 possibly through issuances of a separate standard on derecognition that supersedes
that section of IAS 39.

C
ONSIDERATIONS OF FAIR VALUE MEASUREMENT
Definition of Fair Value

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 FASB Statement no. 157 defines fair value as “the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.”

IFRS 13, Fair Value Measurement applies to IFRS that require or permit fair value
measurements or disclosures and provides a single IFRS framework for measuring fair value and
requires disclosures about fair value measurement. The Standard defines fair value on the basis
of an 'exit price' notion and uses a 'fair value hierarchy', which results in a market-based, rather
than entity-specific measurement. IFRS 13 seeks to increase consistency and comparability in
fair value measurements and related disclosures through a 'fair value hierarchy'.

Objectives
The objective of a fair value measurement is to estimate the price at which an orderly
transaction to sell the asset or to transfer the liability would take place between market
participants at the measurement date under current market conditions. A fair value measurement
requires an entity to determine all of the following: [IFRS 13:B2]

Guidance on Measurement
IFRS 13 provides the guidance on the measurement of fair value, including the following:

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 Fair value measurement assumes an orderly transaction between market participants at the
measurement date under current market conditions [IFRS 13:15]
 Fair value measurement assumes a transaction taking place in the principal market for the
asset or liability, or in the absence of a principal market, the most advantageous market for
the asset or liability [IFRS 13:24]
 A fair value measurement of a non-financial asset takes into account its highest and best use
[IFRS 13:27]
 A fair value measurement of a financial or non-financial liability or an entity's own equity
instruments assumes it is transferred to a market participant at the measurement date, without
settlement, extinguishment, or cancellation at the measurement date [IFRS 13:34]
 The fair value of a liability reflects non-performance risk (the risk the entity will not fulfil an
obligation), including an entity's own credit risk and assuming the same non-performance
risk before and after the transfer of the liability [IFRS 13:42]
 An optional exception applies for certain financial assets and financial liabilities with
offsetting positions in market risks or counterparty credit risk, provided conditions are met
(additional disclosure is required). [IFRS 13:48, IFRS 13:96]

Valuation Techniques

An entity uses valuation techniques appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs. [IFRS 13:61, IFRS 13:67]

Market Approach

It uses prices and other relevant information generated by market transactions involving
identical or comparable (similar) assets, liabilities, or a group of assets and liabilities.

Cost Approach

It reflects the amount that would be required currently to replace the service capacity of an
asset (current replacement cost).

Income Approach

It converts future amounts (cash flows or income and expenses) to a single current
(discounted) amount, reflecting current market expectations about those future amounts.

Impairment of Financial Assets

The International Accounting Standards Board (the Board) is proposing new regulations for
the impairment of financial assets. Current regulation on the impairment of financial assets –
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The Incurred Loss Approach
IAS 39 states that a financial asset is impaired and impairment losses are ncurred only if a
loss event has occurred and this loss event had a reliably measurable impact on the future cash
flows. This is often called the 'incurred loss' approach.

The Expected Loss Approach

The Board has proposed a model where credit losses on financial assets are no longer
recognized when incurred but rather, are recognized on the basis of expected credit losses. This
is often called the 'expected loss' approach.

It is likely to result in earlier recognition of credit losses, which includes not only losses that
have already been incurred but also expected future
losses. Arguably this method will be more prudent
as both assets and profits will be reduced.

Expected credit losses are defined as the

expected shortfall in contractual cash flows. The
estimation of expected credit losses should
consider past events, current conditions and
reasonable and supportable forecasts.

Two Stage Approach:

On initial recognition-

On the initial recognition of a financial asset an entity would recognize an impairment loss
based on the 12-months' expected credit losses.

On subsequent review-

Financial assets whose credit quality has not significantly deteriorated since their initial
recognition; then the impairment loss is based on 12 months of expected credit losses.

Simplified Approach:

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 For trade receivables there is a simplified procedure in that no credit loss allowance is
recognized on initial recognition. Any impairment loss will be the present value of the expected
cash flow shortfalls over the remaining life of the receivables.

DISCLOSURE REQUIREMENTS OF IFRS 9

Overview
IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB's replacement of IAS 39
Financial Instruments: Recognition and Measurement. It is effective for annual periods
beginning or after 1 January 2018 with early application permitted. The Standard includes
requirements for recognition and measurement of financial assets and liabilities, impairment,
derecognition and general hedge accounting. The IASB completed its project to replace IAS 39
in phases, adding to the standard as it completed each phase.

Objective
The objective of the disclosure requirements is for an entity to disclose information to enable
users of financial statements to evaluate:

 The significance of financial instruments for the entity’s financial position and
performance;
 The nature and extent of risks arising from those financial instruments, both during the
period and at the reporting date; and − how the entity manages those risks.

Scope
The requirements apply to all entities but will be most significant for banks. The disclosures for
even the simplest corporates – non-financial institutions will be impacted.

Definition

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  Impairment

Impairment of financial assets is recognized in stages:

 Stage 1—as soon as a financial instrument is originated or purchased, 12-month expected

credit losses are recognized in profit or loss and a loss allowance is established.
 Stage 2—if the credit risk increases significantly and is not considered low, full lifetime
expected credit losses are recognized in profit or loss. The calculation of interest revenue
is the same as for Stage 1.
 Stage 3—if the credit risk of a financial asset increases to the point that it is considered
credit-impaired, interest revenue is calculated based on the amortized cost ( the gross
carrying amount less the loss allowance).
 Hedge accounting

Hedge accounting is optional. The objective of hedge accounting is to represent, in the

financial statements, the effect of an entity’s risk management activities that use financial
instruments to manage exposures arising from particular risks that could affect profit or loss or
other comprehensive income.

IFRS 9 identifies three types of hedging relationships and prescribes special accounting
provisions for each:

 Fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or
liability or an unrecognized firm commitment, or a component of any such item, that is
attributable to a particular risk and could affect profit or loss.
 Cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable
to a particular risk associated with all, or a component of, a recognised asset or liability
(such as all or some future interest payments on variable-rate debt) or a highly probable
forecast transaction, and could affect profit or loss.
 Hedge of a net investment in a foreign operation as defined in IAS 21.

Derecognition
 Financial assets

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 The basic premise for the derecognition model in IFRS 9 (carried over from IAS 39) is to
determine whether the asset under consideration for derecognition is:

 an asset in its entirety or

 specifically identified cash flows from an asset (or a group of similar financial assets) or
 a fully proportionate share of the cash flows from an asset (or a group of similar financial
assets). or
 a fully proportionate share of specifically identified cash flows from a financial asset (or
a group of similar financial assets)
 Financial liabilities

A financial liability should be removed from the balance sheet when, and only when, it is
extinguished, that is, when the obligation specified in the contract is either discharged or
cancelled or expires.

Disclosures
IFRS 9 amends some of the requirements of IFRS 7 Financial Instruments: Disclosures on
risk management activities and hedge accounting and disclosures on credit risk management and
impairment

Disclosure requirements of IAS 32

Overview
IAS 32 Financial Instruments: Presentation outlines the accounting requirements for the
presentation of financial instruments, particularly as to the classification of such instruments into
financial assets, financial liabilities and equity instruments. The standard also provide guidance
on the classification of related interest, dividends and gains/losses, and when financial assets and
financial liabilities can be offset.

Objective
The stated objective of IAS 32 is to establish principles for presenting financial instruments
as liabilities or equity and for offsetting financial assets and liabilities.

Scope
IAS 32 applies in presenting and disclosing information about all types of financial
instruments with the following exceptions:
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  Interests in subsidiaries, associates and joint ventures that are accounted for under
IAS 2
 Insurance contracts
 Financial instruments that are within the scope of IFRS 4
 Contracts and obligations under share-based payment transactions

Key definitions
 Financial instrument

A contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.

 Financial assets

When an entity first recognizes a financial asset, it classifies it based on the entity’s
business model for managing the asset and the asset’s contractual cash flow characteristics, as
follows:

 Amortized cost—a financial asset is measured at amortized cost if both of the following
conditions are met:
 The asset is held within a business model whose objective is to hold assets in order to
collect contractual cash flows; and
 The contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
 Fair value through other comprehensive income—financial assets are classified and
measured at fair value through other comprehensive income if they are held in a business
model whose objective is achieved by both collecting contractual cash flows and selling
financial assets.
 Fair value through profit or loss—any financial assets that are not held in one of the two
business models mentioned are measured at fair value through profit or loss.

 Financial liabilities

All financial liabilities are measured at amortized cost, except for financial liabilities at fair
value through profit or loss. Such liabilities include derivatives (other than derivatives that are
financial guarantee contracts or are designated and effective hedging instruments), other
liabilities held for trading, and liabilities that an entity designates to be measured at fair value
through profit or loss.

 Equity instrument

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Any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities.

 Fair value

The amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm's length transaction.

Classification as liability or equity

The fundamental principle of IAS 32 is that a financial instrument should be classified as either a
financial liability or an equity instrument according to the substance of the contract.

Disclosures
Financial instruments disclosures are in IFRS 7 Financial Instruments: Disclosures, and no longer in IAS
32.

DISCLOSURE REQUIREMENTS OF IFRS 7

Overview
IFRS 7 Financial Instruments: Disclosures requires disclosure of information about the
significance of financial instruments to an entity, and the nature and extent of risks arising from
those financial instruments, both in qualitative and quantitative terms. Specific disclosures are
required in relation to transferred financial assets and a number of other matters.

IFRS 7 was originally issued in August 2005 and applies to annual periods beginning on or
after 1 January 2007.

Information about the significance of financial instruments

 Statement of financial position

Disclose the significance of financial instruments for an entity's financial position and
performance. This includes disclosures for each of the following categories:

 Financial assets measured at fair value through profit and loss, showing separately those
held for trading and those designated at initial recognition
 Held-to-maturity investments
 Loans and receivables
 Available-for-sale assets
 Financial liabilities at fair value through profit and loss, showing separately those held for
trading and those designated at initial recognition
 Financial liabilities measured at amortized cost
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 Other balance sheet-related disclosures
 Special disclosures about financial assets and financial liabilities designated to be
measured at fair value through profit and loss, including disclosures about credit risk and
market risk, changes in fair values attributable to these risks and the methods of
measurement.
 Reclassifications of financial instruments from one category to another (from fair value to
amortized cost or vice versa)
 Information about financial assets pledged as collateral and about financial or non-financial assets
held as collateral
 Reconciliation of the allowance account for credit losses (bad debts) by class of financial assets
 Information about compound financial instruments with multiple embedded derivatives
 Breaches of terms of loan agreements

 Statement of comprehensive income

Items of income, expense, gains, and losses, with separate disclosure of gains and losses from:

 Financial assets measured at fair value through profit and loss, showing separately those
held for trading and those designated at initial recognition.
 Held-to-maturity investments.
 Loans and receivables.
 Available-for-sale assets.
 Financial liabilities measured at fair value through profit and loss, showing separately
those held for trading and those designated at initial recognition.
 Financial liabilities measured at amortized cost.
 Other income statement-related disclosures
 Total interest income and total interest expense for those financial instruments that are
not measured at fair value through profit and loss
 Fee income and expense
 Amount of impairment losses by class of financial assets
 Interest income on impaired financial assets

 Other disclosures
 Accounting policies for financial instruments
 Information about hedge accounting,
Nature and extent of exposure to risks arising from financial instruments

 Qualitative disclosures
The qualitative disclosures describe:
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  Risk exposures for each type of financial instrument
 Management's objectives, policies, and processes for managing those risks
 Changes from the prior period
 Quantitative disclosures
The quantitative disclosures provide information about the extent to which the entity is
exposed to risk, based on information provided internally to the entity's key management
personnel. These disclosures include:
 Summary quantitative data about exposure to each risk at the reporting date
 Disclosures about credit risk, liquidity risk, and market risk and how these risks are
manage
 Concentrations of risk
Disclosure requirements
IFRS requires certain disclosures to be presented by category of instrument based on the IAS 39
measurement categories. Certain other disclosures are required by class of financial instrument. For those
disclosures an entity must group its financial instruments into classes of similar instruments as
appropriate to the nature of the information presented.

The two main categories of disclosures required by IFRS 7 are:

 Information about the significance of financial instruments.
 Information about the nature and extent of risks arising from financial instruments.

INTEREST IN SUBSIDIARIES (IFRS 3, 10 &B12)

A subsidiary is a company with stock that is more than 50% controlled by another company,
which is usually referred to as the parent company or the holding company. The parent company
holds a controlling interest in the subsidiary company, and in cases where a subsidiary is 100%
owned by another firm, the subsidiary is referred to as a wholly owned subsidiary.

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 Subsidiaries are separate and distinct legal entities from their parent companies, which
reflects in the independence of their liabilities, taxation and governance even their controlling
interest, however, parent companies, along with other subsidiary shareholders, vote to elect a
subsidiary company's board of directors, and there may often be board member overlap between
a subsidiary and its parent company. A parent company will typically aggregate financials from
all its operations, including those of its subsidiaries, and carry these financials on its own
consolidated financial statements. A parent company may own a foreign subsidiary, in which
case the subsidiary must follow the laws of the country where it is incorporated and operates.

Subsidiary describes something or someone serves to assist or supplement another thing or

person. In a business setting, a subsidiary becomes part of a parent company to provide the
parent with specific synergies, such as increased tax benefits, diversified risk, or assets in the
form of earnings, equipment or property. The purchase of interest in a subsidiary differs from a
merger in that the parent corporation can acquire a controlling interest with a smaller investment.
Additionally, shareholder approval is not required in the formation of a subsidiary as it would be
in the event of a merger.

Minority interest, also referred to as non-controlling interest (NCI), is the share of

ownership in a subsidiary’s equity that is not owned or controlled by the parent corporation. The
parent company has a controlling interest of 50 to less than 100 percent in the subsidiary and
reports financial results of the subsidiary consolidated with its own financial statements.

For example, suppose that Company A acquires a controlling interest of 75 percent in

Company B. The latter retains the remaining 25 percent of the company. On its financial
statements, Company A cannot claim the entire value of Company B without accounting for the
25 percent that belongs to the minority shareholders of Company B. Thus, company A must
incorporate the impact of company B’s minority interest on its balance sheet and income
statements.

Interests in joint
arrangements and associates
(IAS – 38,
IFRS – 11 & 12)

An entity shall disclose information that

enables users of its financial statements to
evaluate the nature, extent and financial effects of its interests in joint arrangements and
associates, including the nature and effects of its contractual relationship with the other investors

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with joint control of, or significant influence over, joint arrangements and associates the nature
of, and changes in, the risks associated with its interests in joint ventures and associates.

INTERESTS IN UNCONSOLIDATED STRUCTURED

ENTITIES (IFRS – 12)

An entity shall disclose information that enables users of its financial statements to
understand the nature and extent of its interests in unconsolidated structured entities evaluate the
nature of, and changes in, the risks associated with its interests in unconsolidated structured
entities.

Applicability and early adoption

IFRS 12 is applicable to annual reporting periods beginning on or after 1 January 2013. Early
application is permitted. The disclosure requirements of IFRS 12 need not be applied for any
period presented that begins before the annual period immediately preceding the first annual
period for which IFRS 12 is applied.

Entities are encouraged to voluntarily provide the information required by IFRS 12 prior to its
adoption. Providing some of the disclosures required by IFRS 12 does not compel an entity to
comply with all of the requirements of the IFRS or to also apply. IFRS 10 Consolidated
Financial Statements IFRS 11 Joint Arrangements IAS 27 Separate Financial Statements (2011)
IAS 28 Investments in Associates and Joint Ventures (2011).

DISCLOSURE OF INTERESTS IN ANOTHER ENTITIES

(IFRS – 09)
Overview
IFRS 12 Disclosure of Interests in Other Entities is a consolidated disclosure standard
requiring a wide range of disclosures about an entity's interests in subsidiaries, joint
arrangements, associates and unconsolidated 'structured entities'. Disclosures are presented as a
series of objectives, with detailed guidance on satisfying those objectives.

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 Objective
The standard prescribes the disclosures which are to be provided by the entity in its financial
statements in respect of its interest in other entities to enable the viewers of financial statements
to evaluate:

 The nature of interests in other entities held by the reporting entity along with the related
risk with such interest in other entities and
 The impact of those interests in other entities on the financial performance, financial
position, and cash flows of the reporting entity

Meeting the Objective

The entity is required to disclose the following aspects to meet the objective of this standard:

 The major assumptions and judgments made by the reporting entity in order to determine:

 The nature of its interest in the other entity or arrangement;

 The type of interest in joint arrangement

 Information about the interests in other entities held by the reporting entity such interest
in:

Associates and joint arrangements

Structured entities which are not under the control of the reporting entity (unconsolidated
structured entities). If in certain circumstances the disclosures required in this standard, in
combination with disclosures requirements of the other IFRSs, do not meet the objective of this
standard, the entity is required to disclose the additional details which is essential to meet that
objective.

Scope

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The requirements of this standard
are applicable when the reporting entity has
interest in the following:

 Subsidiaries

 Associates and joint arrangements

Structured entities which are not under the control of the reporting entity i.e. (unconsolidated
structured entities).Associates and joint arrangements which are measured at fair value through
profit or loss as per the requirements of IAS 28 . However the requirements of this standard are
not applicable in case of the following:

 Post-employment benefit plans which are covered under IAS 26

 For the interest held by the reporting entity in joint arrangements, but the entity does not
have control in such arrangements

 To the separate financial statements of the reporting entity for which IAS 27 is applicable

 Interest in other entities which is covered under IFRS 9

 Significant judgments and assumptions

An entity discloses information about significant judgments and assumptions it has made (and
changes in those judgments and assumptions) in determining.

that it controls another entity that it has joint control of an arrangement or significant influence
over another entity the type of joint arrangement (i.e. joint operation or joint venture) when the
arrangement has been structured through a separate vehicle.

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 www.wikipedia.com
 www.investopedia.com
 www.study.in
 www.ifrs.org
 www.iasplus.com
 www.ifrsbox.com

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