1. Indian accounting standard
Financial instruments-Disclosures 32

2. Concepts:
• Introduction
• Applicability
• Manner to disclose
• Objective
• Scope
• Disclosure requirements
• Comparison

3. Introduction
• In recent years, the techniques used by entities
for measuring and managing exposure to risks
arising from financial instrument have evolved
and new risk management concepts and
approaches have gained acceptance. The user
of financial statements needs information about
an entity’s exposure to risks and how those risks
are managed. Such information can influence
a user’s assessment of the financial position
and financial performance of an entity or of
the amount, timing and uncertainty of future
cash flows.

4. Manner of disclosure
AS-32 provides that the disclosure as required may
either on the face of the balance sheet or through
the notes to accounts. Generally the practice
followed is through the notes to the accounts.

5. Objective
The objective of this Standard is to require
entities to provide disclosures in their financial
statements that enable users to understand:
• The significance of financial instruments for the
entity’s financial position and performance.
• The nature and extent of risk arising from the
financial instruments to which the entity’s is
exposed: and how to entity manages those risks.

6. Scope
• 1. This Standard should apply to all Recognized financial
instruments. Financial Instruments include Financial Assets
and Financial Liabilities that within the scope of AS-30.
• 2.
This Standard should not apply to all Unrecognized
financial instruments that, although outside the scope of
AS-30.

7. Significance of Financial Instruments for Financial
Position and Disclosure
An entity should disclose information that enables
users of its financial statement to evaluate the
significance of financial instrument for its financial
position and performance.

8. Disclosure requirements for financial instruments
AS-32 prescribes the disclosures requirements for: -
• Different categories of financial assets
• Different categories of financial liabilities
• Re-classification of financial assets
• De-recognition financial assets and financial liabilities
• Financial assets pledged or held as collateral
• Allowances for credit losses
• Compound financial instruments with multiple embedded
derivatives
• Defaults and breaches for loan payable
• Income, expense, gains or losses recognized in profit and loss
account
• Accounting policies followed
• Hedge accounting
• Fair value determination for financial assets and financial liabilities
• Risk disclosures

9. Disclosure for financial assets: -
• As defined in AS 30. Should be disclosed either
on the face of the balance sheet or in the notes:
• Financial assets at fair value through profit or
loss, showing separately;
• Held-to maturity investments;
• Loans and receivables;
• Available – for-sale financial assets;

10. Disclosure for financial liabilities: -
• Entity should disclose the following financial
liabilities at fair value through profit and loss
account:
• Change in fair value of a financial liability, during the
period and changes that give rise to market risk.
• Changes in market condition that give to market risk
include changes in benchmark interest rate,
(The entity should disclose the carrying amount of the
financial liabilities measured at Amortize cost)

11. Disclosure for Re-classification: -
• If the entity has reclassified a financial asset as one
measured:
• At cost or amortize cost, rather than at fair value; or
• At fair value, rather than at cost or amortize cost, it
should disclose the amount re-classified into and out
of each category and the reason for that re-
classification.

12. Disclosure for De-recognition: -
An entity may have transferred financial assets in
such a way that party or all of them do not
qualify for de-recognition.
The entity should disclose:
• The nature of the financial assets;
• The nature of the risks and rewards of
ownership to which the entity remains exposed;

13. Disclosure for collateral: -
• Collateral given:
Disclosure of the carrying amount is required in
addition to the term and conditions of financial
assets pledged as collateral;
• Collateral taken:
An entity must disclose the fair value and terms and
conditions of assets received as collateral. Which it
has a right to sell or re-pledged in the absence of
default;

14. Disclosure for Allowance account for credit losses: -
When financial assets are impaired by credit losses
and the entity records the impairment in a separate
account ,rather than directly reducing the caring
amount of the assets, it should disclose a
reconciliation of changes in that account during the
period for each class of financial assets.

15. Disclosure for Compound financial instruments with
multiple embedded derivatives: -
• If an entity has issued an instrument that
contains both a liability and equity component
and the instrument have multiple embedded
derivatives whose values are independent (such
as a callable convertible debt instrument), it
should disclose the existence of those features.

16. Disclosure for Defaults and Breaches: -
For loans payable recognized at the reporting
date and entity should disclose:
• Details of any defaults during the period of
principal. Interest, sinking fund, or redemption
terms of those loans payable;
• The carrying amount of the loans payable in
default at the reporting date;

17. Disclosure for income, expense, gains or losses recognized in
profit and loss account: -
An entity should disclose the following items of income,
gains, or losses either on the face of the financial
statements or in the notes:
• Net gains or losses for each category of financial asset or
financial liability.
• Available for sale gains or losses recognized in equity,
• Total interest income and total interest expense from financial
asset and financial liabilities that ate both measured at fair value
through profit or loss.
• Fee income and expense (other than the one considered for
effective interest rate purposes) for financial assets and
financial liabilities not measured at fair value through profit or
loss.
• Fee income and expense from trust and other fiduciary activities
• Interest accrued on impaired financial assets
• Impairment losses for each category of financial assets.

18. Disclosure for hedge accounting: -
An entity should disclosure the foll separately
for each type of hedge described in AS-30:
• A description of each type of hedge;
• A description of the financial instrument
designated as hedging instrument and their fair
values at the reporting date; and
• The nature of the risks being hedged.

19. Disclosure for Fair value determination for
financial assets and financial liabilities: -
• Whether the fair value is based on valuation
techniques
• Whether the fair value is based on a valuation
technique that includes assumptions not supported
by market prices or rates and the amount of profit
recognized.
• The effect of reasonable possible alternative
assumption used in a valuation technique.

20. Risk disclosure: -
(An entity should disclose information that enables
user of its financial statement to evaluate the nature
and extent of risks arising from financial instruments
to which the entity is exposed at the reporting date)
Typically there are 3 risks arise from financial
instrument:
• Credit risk
• Liquidity risk
• Market risk

21. • Credit risk- The risk that one party to a financial
instrument will cause a financial loss for the other
party by failing to discharge an obligation.
The risk that a change in the credit quality whereby a
counter party is unwilling or unable to fulfill its
contractual obligation.
• Liquidity risk- The risk that entity will encounter
difficulty in meeting obligation associated with
financial liabilities. In other words it may not have
required cash or cash equivalent to meet its financial
obligation resulting in default.
• The market risk- The risk that the fair value or future
cash flows of a financial instrument will fluctuate
because of changes in market prices.

22. Market risk comprises 3 types of risk:
• Currency risk- The risk the fair value or future cash
flows of financial instrument will fluctuate because of
changes in foreign exchange rates.
• Interest rate risk- The risk that the fair value or
future cash flows of a financial instrument will
fluctuate because of changes in market interest
rates.
• Other price risk- The risk that fair value or future
cash flows of a financial instrument will fluctuate
because of changes in market prices (other than
those arising from interest rate or currency risk).

23. Comparison with IFRS
This standard is based on International Financial
Reporting Standard (IFRS)-7, Financial
Instrument: Discloser issued by International
Accounting Board (IASB). There is no material
difference between AS-32 and IFRS-7.