IFRS Jargon

Last update 21/08/2019 The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk, and other price risk. Currency risk The risk that the fair value or future cash flows of a … Read more

Last update 11/12/2019 Macro hedging – IFRS 9 hedge accounting applies to all hedge relationships, with the exception of fair value hedges of the interest rate exposure of a portfolio of financial assets or financial liabilities (commonly referred as ‘fair value macro hedges’). This exception arises because IASB has a separate project to address the accounting … Read more

Last update 21/08/2019 IFRS 9 includes a practical expedient for low credit risk financial instruments. Characteristics of low credit risk financial instruments include: Strong capacity to meet its contractual cash flow obligations in the near term, Adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the borrower’s … Read more

Last update 06/12/2019 Low credit risk, in the context of IFRS 9, is an indicator assigned to financial instruments deemed to have low default risk, that is a low likelihood of any credit event the borrower has a strong capacity to meet contractual cash flow obligations both in the near term. It is an important … Read more

Last update 13/12/2019 The loss given default (LGD) represents the entity’s expectation (entity often being an insurer but also other entities) of the extent of loss on a defaulted exposure. The LGD varies by type of borrower, type and seniority of claim and availability of collateral or other credit support. The LGD is expressed as … Read more

Last update 14/11/2019 Loss allowance is an approach for the prudence or conservatism principle. Assets should not be overstated, liabilities not understated. Better save, than sorry! The term ‘Loss allowance’ covers allowances recorded against the following financial assets: The allowance for expected credit losses on financial assets measured at amortised costs (in accordance with IFRS … Read more

Last update 18/08/2019 Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than: those at fair value through profit or loss; those designated as available-for-sale; and those which the holder may not recover substantially all of its initial investment. Loans and receivables shall be measured upon initial … Read more

Last update 18/08/2019 One major tool to finance corporations is via credit line commitments. These are short term credit lines that firms can withdraw from their banks, up to a certain, predetermined ceiling, at a certain cost, usually above the interest rate on long term credit. The credit lines serve corporations to finance, usually, short … Read more

Last update 18/08/2019 Definition: The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk is the most fundamental financial risk that companies need to manage. Insufficient or no access to liquidity or cash at a required time and … Read more

Last update 18/08/2019 The Expected Credit Losses (ECL) requirement in IFRS 9 makes the initial selection of bonds for fixed income investments by financial institutions much more important, as selecting bonds with good long-term credit health is key to reducing the risk of future P&L fluctuations caused by changes in ECL. This is especially important … Read more