Financial Instrument Disclosure

Question 1

With respect to financial instruments, what is the most common required disclosure?

Answer 1

Fair Value Disclosure Requirements:

• The following information must be disclosed for each financial instrument is practicable.
• Fair Value (how was it measured)
• Related carrying value
• Whether the instrument is an asset or liability

Question 2

What does it mean to be practicable to estimate? If it is not practicable to estimate, what are the disclosure requirements?

Answer 2

Practicable to estimate means that the fair value estimates can be made without incurring excessive cost.
- A cost/benefit assessment

If it is not practicable, the entity has to disclose why it isn’t practicable to estimate. Need to provide information pertinent to estimating fair value

1) Carrying amount
2) Effective interest Rate
3) Maturity date and value

Question 3

If there is a concentration of credit risk, what type of disclosure is required?

Answer 3

Entities must disclose all significant concentrations of credit risk associated with financial instruments.

Define Credit Risk: The possibility of loss from failure of counter party to perform according to the terms of the contract.

Question 4

What are examples of same concentrations of credit risk?

Answer 4

1) Same Industry (only buy airplanes from Boeing)
2) Same country or geographic region
3) Similar economic interest

Question 5

What is a market risk disclosure and what are the requirements?

Answer 5

Recommended but not required.

Market risk disclosures for financial instruments are recommended but not required.

• Market risk is the possibility of loss from change in market value due to changes in economic circumstances.
  1) Changes in interest rates
  2) Changes in inflation