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Commission Regulation
(EC) No 2237/2004 of 29 December 2004 amended
by
Regulation (EC) No 2237/2004
and
Regulation (EC) No 1864/2005
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Fair Value
86. Except as set
out in paragraph 90 and 91A, for each class of financial assets
and financial liabilities, an entity shall disclose the
fair value of that class of assets and
liabilities in a way that permits it to be compared with
the corresponding carrying amount in the balance sheet.
(IAS 39 provides guidance for determining fair value.)
87. Fair value
information is widely used for business purposes in
determining an entity’s overall financial position and in
making decisions about individual financial instruments. It is
also relevant to many decisions made by users of financial
statements because, in many circumstances, it reflects the
judgement of the financial markets about the present value of
expected future cash flows relating to an instrument. Fair
value information permits comparisons of financial instruments
having substantially the same economic characteristics,
regardless of why they are held and when and by whom they were
issued or acquired. Fair values provide a neutral basis for
assessing management’s stewardship by indicating the effects
of its decisions to buy, sell or hold financial assets and to
incur, maintain or discharge financial liabilities. When an
entity does not measure a financial asset or financial
liability in its balance sheet at fair value, it provides fair
value information through supplementary disclosures.
88. For financial
instruments such as short-term trade receivables and payables,
no disclosure of fair value is required when the carrying
amount is a reasonable approximation of fair value.
89. In disclosing
fair values, an entity groups financial assets and financial
liabilities into classes and offsets them only to the extent
that their related carrying amounts are offset in the balance
sheet.
90. If investments
in unquoted equity instruments or derivatives linked to
such equity instruments are measured at cost under IAS 39
because their fair value cannot be measured reliably,
that fact shall be disclosed together with a
description of the financial instruments, their
carrying amount, an explanation of why fair value cannot be
measured reliably and, if possible, the range of
estimates within which fair value is highly
likely to lie. Furthermore, if financial assets
whose fair value previously could not be reliably measured
are sold, that fact, the carrying amount of such
financial assets at the time of sale and the
amount of gain or loss recognised shall be disclosed.
91. If investments
in unquoted equity instruments or derivatives linked to such
equity instruments are measured at cost under IAS 39 because
their fair values cannot be measured reliably, the information
about fair value set out in paragraphs 86 and 92 is not
required to be disclosed. Instead, information is provided to
assist users of the financial statements in making their own
judgements about the extent of possible differences between
the carrying amount of such financial assets and financial
liabilities and their fair value. In addition to an
explanation of the principal characteristics of the financial
instruments that are pertinent to their value and the reason
for not disclosing fair values, information is provided about
the market for the instruments. In some cases, the terms and
conditions of the instruments disclosed in accordance with
paragraph 60 may provide sufficient information. When it has a
reasonable basis for doing so, management may indicate its
opinion on the relationship between fair value and the
carrying amount of financial assets and financial liabilities
for which it is unable to determine fair value reliably.
91A. Some financial assets and financial liabilities contain
a discretionary participation feature as described in
IFRS 4 Insurance Contracts. If an entity cannot measure
reliably the fair value of that feature, the entity
shall disclose that fact together with a description of the
contract, its carrying amount, an explanation of why
fair value cannot be measured reliably and, if possible, the
range of estimates within which fair value is highly
likely to lie.
92. An entity shall
disclose:
(a) the methods and
significant assumptions applied in determining
fair values of financial assets and financial liabilities
separately for significant classes of financial assets
and financial liabilities. (Paragraph 55 provides
guidance for determining classes of financial
assets.)
(b) whether fair
values of financial assets and financial liabilities
are
determined directly, in full or in part, by reference to
published price quotations in an active market or are
estimated using a valuation technique (see IAS 39,
paragraphs AG71-AG79).
(c) whether its
financial statements include financial instruments
measured at fair values that are determined in full
or in part using a valuation technique based on assumptions
that are not supported by observable market prices
or rates. If changing any such assumption to a reasonably
possible alternative would result in a significantly
different
fair value, the entity shall state this fact and disclose
the effect on the fair value of a range of reasonably
possible alternative assumptions. For this
purpose, significance shall be judged with
respect to profit or loss and total assets or total
liabilities.
(d) the total amount
of the change in fair value estimated using a valuation
technique that was recognised in profit or loss during
the period.
93. Disclosure of
fair value information includes disclosure of the method used
in determining fair value and the significant assumptions made
in its application. For example, an entity discloses
information about the assumptions relating to prepayment rates,
rates of estimated credit losses and interest or discount
rates if they are significant.
Other Disclosures
Derecognition
94. (a) An entity
may have either transferred a financial asset (see
paragraph 18 of IAS 39) or entered into the type of arrangement
described in paragraph 19 of IAS 39 in such a way
that the arrangement does not qualify as a transfer of a
financial asset. If the entity either continues to
recognise all of the asset or continues to
recognise the asset to the extent of the entity’s
continuing involvement (see IAS 39, paragraphs 29
and 30) it shall disclose for each class of financial asset:
(i) the nature of
the assets;
(ii) the nature of
the risks and rewards of ownership to which
the entity remains exposed;
(iii) when the
entity continues to recognise all of the asset, the
carrying amounts of the asset and of the associated liability;
and
(iv) when the entity
continues to recognise the asset to the extent
of its continuing involvement, the total amount of
the asset, the amount of the asset that the entity continues
to recognise and the carrying amount of the associated
liability.
Collateral
(b) An entity shall
disclose the carrying amount of financial assets
pledged as collateral for liabilities, the carrying
amount
of financial assets pledged as collateral for contingent
liabilities, and (consistently with paragraphs 60(a)
and
63(g)) any material terms and conditions relating to
assets
pledged as collateral.
(c) When an entity
has accepted collateral that it is permitted to sell
or repledge in the absence of default by the owner of the
collateral, it shall disclose:
(i) the fair value
of the collateral accepted (financial and non-financial
assets);
(ii) the fair value
of any such collateral sold or repledged and
whether the entity has an obligation to return it;
and
(iii) any material
terms and conditions associated with its use of
this collateral (consistently with paragraphs 60(a)
and 63(g)).
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