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Commission Regulation (EC) No
2237/2004 of 29 December 2004 amending Regulation (EC) No 1725/2003
adopting certain international accounting standards in accordance
with Regulation (EC) No 1606/2002 of the European Parliament and of
the Council, as regards IAS No 32 and IFRIC 1
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Terms, Conditions
and Accounting Policies
60. For each class
of financial asset, financial liability and equity instrument,
an entity shall disclose:
(a) information
about the extent and nature of the financial instruments,
including significant terms and conditions that may
affect the amount, timing and certainty of future cash
flows; and
(b) the accounting
policies and methods adopted, including the criteria
for recognition and the basis of measurement applied.
61. As part of the
disclosure of an entity’s accounting policies, an entity
shall disclose, for each category of financial assets,
whether regular way purchases and sales of
financial assets are accounted for at trade date
or at settlement date (see IAS 39, paragraph 38).
62. The contractual
terms and conditions of a financial instrument affect the
amount, timing and certainty of future cash receipts and
payments by the parties to the instrument. When financial
instruments are significant, either individually or as a class,
to the financial position of an entity or its future operating
results, their terms and conditions are disclosed. If no
single instrument is individually significant to the future
cash flows of the entity, the essential characteristics of the
instruments are described by reference to appropriate
groupings of like instruments.
63. When financial
instruments held or issued by an entity, either individually
or as a class, create a potentially significant exposure to
the risks described in paragraph 52, terms and conditions that
warrant disclosure include:
(a) the principal,
stated, face or other similar amount, which, for some
derivative instruments, such as interest rate swaps, might be
the amount (referred to as the notional amount) on which
future payments are based;
(b) the date of
maturity, expiry or execution;
(c) early settlement
options held by either party to the instrument, including the
period in which, or date at which, the options can be
exercised and the exercise price or range of prices;
(d) options held by
either party to the instrument to convert the instrument into,
or exchange it for, another financial instrument or some other
asset or liability, including the period in which, or date at
which, the options can be exercised and the conversion or
exchange ratio(s);
(e) the amount and
timing of scheduled future cash receipts or payments of the
principal amount of the instrument, including instalment
repayments and any sinking fund or similar requirements;
(f) stated rate or
amount of interest, dividend or other periodic return on
principal and the timing of payments;
(g) collateral held,
in the case of a financial asset, or pledged, in the case of a
financial liability;
(h) in the case of
an instrument for which cash flows are denominated in a
currency other than the entity’s functional currency, the
currency in which receipts or payments are required;
(i) in the case of
an instrument that provides for an exchange, information
described in items (a)-(h) for the instrument to be acquired
in the exchange; and
(j) any condition of
the instrument or an associated covenant that, if contravened,
would significantly alter any of the other terms (for example,
a maximum debt-to-equity ratio in a bond covenant that, if
contravened, would make the full principal amount of the bond
due and payable immediately).
64. When the balance
sheet presentation of a financial instrument differs from the
instrument’s legal form, it is desirable for an entity to
explain in the notes to the financial statements the nature of
the instrument.
65. The usefulness
of information about the extent and nature of financial
instruments is enhanced when it highlights any relationship
between individual instruments that can significantly affect
the amount, timing or certainty of the future cash flows of an
entity. For example, it may be important to disclose hedging
relationships such as one that might exist when an entity
holds an investment in shares for which it has purchased a put
option. The extent to which a risk exposure is altered by the
relationship among the assets and liabilities may be apparent
to financial statement users from information of the type
described in paragraph 63, but in some circumstances further
disclosure is necessary.
66. In accordance
with IAS 1, an entity provides disclosure of all significant
accounting policies, including the general principles
adopted and the method of applying those principles to
transactions, other events and conditions arising in the
entity’s business. In the case of financial instruments,
such disclosure includes:
(a) the
criteria applied in determining when to recognise a
financial asset or financial liability and when to
derecognise it;
(b) the
basis of measurement applied to financial assets and
financial liabilities on initial recognition and
subsequently;
(c) the
basis on which income and expenses arising from
financial assets and financial liabilities are
recognised and measured; and
(d) for
financial assets or financial liabilities designated
as at fair value through profit or loss:
(i)
the criteria for so designating such financial
assets or financial liabilities on initial
recognition;
(ii)
how the entity has satisfied the conditions in
paragraph 9, 11A or 12 of IAS 39 for such
designation. For instruments designated in
accordance with paragraph 9(b)(i) of IAS 39,
that disclosure includes a narrative description
of the circumstances underlying the measurement
or recognition inconsistency that would
otherwise arise. For instruments designated in
accordance with paragraph 9(b)(ii) of IAS 39,
that disclosure includes a narrative description
of how designation as at fair value through
profit or loss is consistent with the entity’s
documented risk management or investment
strategy;
(iii)
the nature of the financial assets or financial
liabilities the entity has designated as at fair
value through profit or loss.
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