IFRS 7, titled Financial Instruments: Disclosures, is an International Financial Reporting Standard (IFRS) published by the International Accounting Standards Board (IASB). It requires entities to provide certain disclosures regarding financial instruments in their financial statements. The standard was originally issued in August 2005 and became applicable on 1 January 2007, superseding the earlier standard IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and replacing the disclosure requirements of IAS 32, previously titled Financial Instruments: Disclosure and Presentation.
Disclosure requirements IFRS 7 requires entities to provide disclosures about: The significance of financial instruments for the entity's financial position and performance.IASB. IFRS 7, Paragraph 7. The carrying amount of each class of financial instrument on the statement of financial position or within the notes.IASB. IFRS 7, Paragraph 8. Items of income, expense, gains and losses for each class of financial instrument, either in the statement of profit or loss and other comprehensive income or within the notes.IASB. IFRS 7, Paragraph 20. The nature and extent of risks (credit risk, liquidity risk, market risk) faced by the entity due to the financial instruments.IASB. IFRS 7, Paragraph 31.
According to accounting expert David Grünberger, qualitative disclosures are essential to explain how management perceives and manages risk.Grünberger, D. (2024). IFRS 2024: Ein systematischer Praxisleitfaden. Linde Verlag. Steffen Kuhn and Dirk Hachmeister emphasize that a central goal of IFRS 7 is to enable users to evaluate the entity's exposure to risk and the way those risks are managed based on the internal perspective of management.Kuhn, S., & Hachmeister, D. (2015). Rechnungslegung und Prüfung von Finanzinstrumenten: Handbuch nach IFRS, HGB und EMIR. Schäffer-Poeschel. This must cover management's objectives and policies for managing those risks, and any changes in the year.IASB. IFRS 7, Paragraph 33.
Accounting policies that the entity adopts regarding financial instruments.IASB. IFRS 7, Paragraph 21. Qualitative and quantitative information about hedges and hedge accounting.
Fair value measurement The three-level "fair value hierarchy" is used to measure the fair values of each class of financial instruments.IASB. IFRS 13, Paragraph 72. Kuhn and Hachmeister point out that the auditing of Level 3 measurements presents significant challenges, as the valuation relies heavily on entity-internal models and non-observable parameters.
Level 1 Unadjusted quoted prices of identical instruments in active markets.IASB. IFRS 13, Paragraph 76. Level 2 Observable data from less active markets or of instruments that are similar but not the same.IASB. IFRS 13, Paragraph 81. Level 3 Inputs not based on observable market data.IASB. IFRS 13, Paragraph 86. As an illustrative disclosure for IFRS 13 requirements, Deutsche Bank categorizes its financial instruments held at fair value into a three-level hierarchy. This classification is based on whether the inputs to the valuation technique are observable or unobservable (Level 1, 2, or 3).Deutsche Bank AG, Annual Report 2024, Note 13 – Financial Instruments held at Fair Value, p. 240.
+ Financial instruments held at fair value by hierarchy level (€ m) Financial Assets / Liabilities Dec 31, 2024 Dec 31, 2023 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Financial assets held at fair value: Trading assets 52,387 78,237 9,148 53,095 62,760 9,420 Positive market values (Derivatives) 912 282,909 7,933 2,198 241,460 8,198 Financial assets at FVOCI 21,901 16,806 3,383 18,273 14,324 2,949 Total financial assets at fair value 78,034 484,008 26,281 77,193 398,894 25,599 Financial liabilities held at fair value: Trading liabilities 30,765 12,614 119 36,361 7,617 27 Negative market values (Derivatives) 2,238 265,450 8,707 2,333 228,261 7,666 Liabilities designated at FVTPL 0 87,479 4,569 169 80,309 3,248 Total financial liabilities at fair value 33,543 369,113 13,382 39,349 317,884 10,856 Disclosure of fair value is not required if the carrying amount is a reasonable approximation of fair value. Kuhn and Hachmeister further note that the depth of disclosure must correspond to the risk relevance of the respective financial instruments.
Illustrative Accounting Examples
1. Credit Risk: Expected Credit Loss (ECL) Disclosure Scenario: An entity calculates an impairment for trade receivables.
Event Debit Credit Amount Rationale Recognition of ECL Impairment Loss (P&L) $12,000 Required disclosure of the reconciliation of changes in the loss allowance.IASB. IFRS 7, Para 35H. Allowance for ECL (SoFP) $12,000 Net credit exposure must be disclosed clearly.
2. Market Risk: Interest Rate Sensitivity Scenario: An entity has a floating-rate bank loan of $1,000,000.
Market Shift Impact on Profit Impact on Equity Rationale Interest Rate +1% ($10,000) ($10,000) Required sensitivity analysis showing impact on profit or loss.IASB. IFRS 7, Para 40. Interest Rate -1% $10,000 $10,000 Sensitivity analysis must reflect reasonably possible changes.
Illustrative disclosure
As an illustrative disclosure for IFRS 7 requirements regarding credit risk concentrations, Deutsche Bank provides a granular industry breakdown of its loan book in its notes. This presentation includes all assets classified under IFRS 9—specifically those at amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit and loss (FVTPL)—using the European NACE system for counterparty classification.Deutsche Bank AG, Annual Report 2024, Note 18 – Loans, p. 256.
Credit risk concentration + Loans by industry classification (Deutsche Bank Group) Industry Classification (NACE Code) Dec 31, 2024 (€ m) Dec 31, 2023 (€ m) Agriculture, forestry and fishing 336 386 Mining and quarrying 4,342 3,130 Manufacturing 28,359 30,564 Electricity, gas, steam and air conditioning 5,017 4,734 Water supply, sewerage, waste management 598 486 Construction 4,604 4,494 Wholesale and retail trade; repair of motor vehicles 22,481 22,127 Transport and storage 5,347 5,617 Accommodation and food service activities 2,749 1,865 Information and communication 9,940 8,082 Financial and insurance activities 133,350 116,298 Real estate activities 51,535 50,793 Professional, scientific and technical activities 6,623 6,958 Administrative and support service activities 9,496 9,385 Public administration and defense 6,235 6,131 Education 313 281 Human health services and social work activities 4,170 4,432 Arts, entertainment and recreation 840 1,072 Other service activities 6,835 5,050 Activities of households as employers 199,812 210,982 Activities of extraterritorial organizations 22 0 Gross loans 503,005 492,868 (Deferred expense)/unearned income 1,352 1,675 Loans less (deferred expense)/unearned income 501,653 491,192 Less: Allowance for loan losses 5,697 5,208 Total loans 495,955 485,984
Allowance for credit losses To satisfy the requirements of IFRS 7.35H, Deutsche Bank provides a reconciliation of the allowance for credit losses in its notes, showing the movement between Stage 1 (12-month ECL), Stage 2 (Lifetime ECL – non-impaired), and Stage 3 (Lifetime ECL – credit-impaired) for financial assets at amortized cost.See: IFRS 7 Para 35H(a); Deutsche Bank AG, Annual Report 2024, Note 19 – Allowance for Credit Losses, p. 265.
+ Development of allowance for credit losses (Amortized Cost) Movement in Allowance (€ m) Stage 1 Stage 2 Stage 3 Stage 3 POCI Total Balance, beginning of year (2024) 447 680 3,960 198 5,285 Movements (new business and credit extensions) (150) 194 1,814 3 1,861 Transfers due to changes in creditworthiness 128 (128) 0 N/M 0 Changes in models (2) (7) 0 0 (9) Financial assets derecognized (incl. charge-offs) 0 0 (1,229) 0 (1,229) Recovery of written off amounts 0 0 157 0 157 Foreign exchange and other changes 15 (3) (290) 11 (267) Balance, end of reporting period 438 736 4,412 213 5,799 Provision for Credit Losses (excl. country risk) (24) 59 1,814 3 1,852
Disclosure Requirements (IFRS 7) IFRS 7 requires entities to provide disclosures that enable users to evaluate the significance of financial instruments for the entity's financial position and performance, and the nature and extent of risks arising from those instruments.IASB. IFRS 7, Paragraph 7-42.
Paragraph Category Disclosure Requirement Description / Examples IFRS 7.8 Significance Carrying Amounts Disclosure of the carrying amounts of each category of financial assets and liabilities (e.g., Amortized Cost, FVTPL, FVOCI). IFRS 7.25 Fair Value Fair Value Hierarchy For each class of financial instrument, the fair value must be disclosed and categorized into Level 1, 2, or 3 based on the observability of inputs. IFRS 7.33 Risk Management Qualitative Risk For each type of risk (Credit, Liquidity, Market): the exposures to the risk and how they arise, and the objectives/policies for managing them. IFRS 7.34 Quantitative Data Summary quantitative data about the entity's exposure to risk at the end of the reporting period based on information provided internally to key management. IFRS 7.35 Credit Risk & ECL Information about an entity’s credit risk management practices and how they relate to the recognition and measurement of Expected Credit Losses (ECL). IFRS 7.39 Liquidity Risk Maturity Analysis A maturity analysis for financial liabilities showing the remaining contractual maturities (e.g., <1 year, 1-5 years, >5 years). IFRS 7.40 Market Risk Sensitivity Analysis A sensitivity analysis for each type of market risk (e.g., currency, interest rate) showing how profit/loss and equity would have been affected by "reasonably possible" changes. IFRS 7.13 Collateral Pledged Assets The carrying amount of financial assets the entity has pledged as collateral for liabilities and the terms and conditions relating to its pledge.
See also IFRS 9, Financial Instruments List of International Financial Reporting Standards
References
External links IFRS 7 Financial Instruments: Disclosures on IFRS Foundation