• 1-6 months;
• 6 months – 1 year;
• 1-2 years;
• 2-3 years; and
• more than 3 years;
Financial
instruments:
Presentation and disclosure 4213
and a second analysing only the lease liabilities but using the following time bands:
• less than 1 year;
• 1-5 years;
• 5-10 years;
• 10-15 years;
• 15-20 years; and
• 20-25 years. [IFRS 7.IG31A].
IFRS 16 is effective for periods commencing on or after 1 January 2019 (see 8.3 below).
When a counterparty has a choice of when an amount is paid, the liability should be
included on the basis of the earliest date on which the entity can be required to pay. For
example, financial liabilities such as demand deposits that an entity can be required to
repay on demand should be included in the earliest time band. [IFRS 7.B11C(a)]. This means
that the disclosure shows a worst case scenario, even if there is only a remote possibility
that the entity could be required to pay its liabilities earlier than expected, [IFRS 7.BC57],
(although the disclosures at 5.4.3 below may be relevant in these circumstances, i.e.
those which are based on the information used by management to manage liquidity risk).
No guidance is given on how to deal with instruments where the issuer has a choice of
when an amount is paid. For example, borrowings containing embedded issuer call or
issuer prepayment options might be included in the analysis for non-derivative financial
liabilities based on the earliest, latest or expected contractual payment dates. Where an
entity has a material amount of such instruments it would be appropriate to explain the
basis of the analyses presented.
When an entity is committed to make amounts available in instalments, each instalment
should be allocated to the earliest period in which the entity can be required to pay. For
example, an undrawn loan commitment would be included in the time band containing
the earliest date it could be drawn down. [IFRS 7.B11C(b)].
For issued financial guarantee contracts, amounts included in the maturity analysis
should be allocated to the earliest period in which the guarantee could be called.
[IFRS 7.B11C(c)].
5.4.2.B
Cash flows: general requirements
The amounts that should be disclosed in the maturity analyses are the contractual
undiscounted cash flows, for example:
• gross finance lease obligations (before deducting finance charges);
• prices specified in forward agreements to purchase financial assets for cash;
• net amounts for pay-floating/receive-fixed interest rate swaps for which net cash
flows are exchanged;
• contractual amounts to be exchanged in a derivative financial instrument (e.g. a
currency swap) for which gross cash flows are exchanged; and
• gross loan commitments.
4214 Chapter 50
These undiscounted cash flows will differ from the amount included in the statement of
financial position because the latter amount is based on discounted cash flows.
[IFRS 7.B11D].
When the amount payable is not fixed, the amount disclosed should be determined by
reference to the conditions existing at the reporting date. For example, if the amount
payable varies with changes in an index, the amount disclosed may be based on the level
of the index at the reporting date. [IFRS 7.B11D]. The standard does not explain whether
the amount should be based on the spot or forward price of the index and, in practice,
both approaches are used. Where a material difference between the two approaches
could arise it would be appropriate to explain the basis on which the information is
prepared as Berendsen plc does.
Extract 50.3: Berendsen plc (2014)
Notes to the consolidated financial statements [extract]
17. Financial
risk
management [extract]
17.1
Financial risk factors [extract]
c) Liquidity
risk [extract]
The table below analyses the group’s financial liabilities, excluding break clauses, which will be settled on a net basis into relative maturity groupings based on the remaining period at the balance sheet to the contract maturity date. The
amounts disclosed in the table are contractual undiscounted cash flows using spot interest and foreign exchange rates
at 31 December 2014. Balances due within 12 months equal their carrying balances as the impact of the discount is
not significant.
Berendsen applied IAS 39 in these financial statements but the disclosure requirements
in respect of liquidity risk are unchanged under IFRS 9.
The definition of liquidity risk includes only financial liabilities that will result in the
outflow of cash or another financial asset (see 5 above) which means that financial
liabilities that will be settled in the entity’s own equity instruments and liabilities within
the scope of IFRS 7 that are settled with non-financial assets will not be included in the
maturity analysis. [IFRS 7.BC58A(a)].
5.4.2.C
Cash flows: borrowings
It follows from the requirements at 5.4.2.B above that the cash flows included in the
analysis of non-derivative financial liabilities in respect of interest-bearing borrowings
should reflect coupon as well as principal payments (although the standard does not say
this explicitly). Quite how perpetual debt obligations should be dealt with in this analysis
remains to be seen because the amount the standard requires in the latest maturity
category is infinity!
Financial
instruments:
Presentation and disclosure 4215
A number of companies show coupon payments separately from payments of principal,
for example Unilever (see Extract 50.4 at 5.4.2.G below). However, separate disclosure
is not required and coupon payments are commonly aggregated with principal payments
as Nestlé and Volkswagen have (see Extracts 50.5 and 50.6 respectively).
The following example illustrates the cash flows that should be included in the maturity
analysis for non-derivative financial liabilities for a simple floating rate borrowing.
Example 50.9: Maturity analysis: floating rate borrowing
On 1 January 2019, Company P borrowed €100 million from a bank on the following terms: coupons are
payable on the entire principal on 30 June and 31 December each year at the annual rate of LIBOR plus 1%
as determined on the previous 1 January and 1 July; the principal is repayable on 31 December 2022.
At the end of 2019, P’s reporting period, LIBOR is 5% and there is no difference between spot and forward interest
rates (i.e. the yield curve is flat). Accordingly, P would include the following cash flows in its maturity analysis:
€ million
30 June 2020
3
31 December 2020
3
30 June 2021
3
31 December 2021
3
30 June 2022
3
31 December 2022
103
Total 118
5.4.2.D
Cash flows: derivatives
In the case of derivatives that are settled by a gross exchange of cash flows, it is not entirely
although such information might be considered useful. Further, because the analysis is of
financial liabilities, it seems clear that, strictly, cash outflows from a derivative asset that
is settled by a gross exchange of cash should not be included. However, the contractual
cash flows on these instruments would appear to be no less relevant than on those that
have a negative fair value and should be disclosed where relevant.
A number of approaches to these issues were seen in practice as illustrated in
Extracts 50.4 to 50.7 at 5.4.2.G below. Unilever and Nestlé both included cash inflows as
well as outflows whereas Volkswagen showed only the cash outflows; Unilever included
only derivative liabilities whereas Nestlé and Volkswagen included gross-settled
derivative assets too. The size of the figures disclosed by entities with gross-settled
derivatives can be staggering – Volkswagen, for example, disclosed gross cash outflows
of nearly €30 billion from its derivatives.
4216 Chapter 50
The IASB staff has been clear that disclosure of only the outflow on derivatives that
were in a liability position was explicitly required. However, IFRS 7 now emphasises
the need to provide a maturity analysis of assets where such information is necessary to
enable users of financial statements to evaluate the nature and extent of the entity’s
liquidity risk (see 5.4.3 below). This change is likely to bring derivative assets within the
scope of the maturity analyses9 and, by analogy, related gross cash inflows. Similar issues
can arise on commodity contracts that are accounted for under IFRS 9 which will often
be settled by exchanging the commodity for cash. An additional complication with these
is that one leg of the contract may not involve a cash flow.
Further issues can arise in the case of a derivative liability settled by exchanging net
cash flows in a number of future periods. For example, the relevant index for a long-
term interest rate swap might predict that in some periods the entity could have cash
inflows. Although this issue was identified by the IASB staff,10 it has not been
addressed and it remains unclear whether and how these inflows should be included
within the analyses.
5.4.2.E
Cash flows: embedded derivatives
The application guidance to IFRS 7 explains that where an embedded derivative is
separated from a hybrid (combined) financial instrument (see Chapter 42 at 4), the
entire instrument should be dealt with in the maturity analysis for non-derivative
instruments. [IFRS 7.B11A].
No guidance is given for dealing with embedded derivatives separated from non-
financial contracts. However, applying a similar approach to those separated from
financial instruments would result in them being excluded from the maturity analyses
altogether. This is because the hypothecated cash flows of the embedded derivative
would be treated as cash flows of the non-financial contract and such contracts are not
within the scope of IFRS 7. This is consistent with the IASB staff analysis when
developing the above requirement: they planned to exclude from the maturity analysis
all separated embedded derivatives except those for which the hybrid contract was a
financial liability because including them was unhelpful in understanding the liquidity
information provided.11
5.4.2.F
Cash flows: financial guarantee contracts and written options
For issued financial guarantee contracts, IFRS 7 requires the maximum amount of the
guarantee to be included in the maturity analysis, [IFRS 7.B11C(c)], but credit default
swaps and written options are not directly addressed. However, the IASB staff have
noted that the question of what to include in the maturity analysis is the same for such
instruments and, in our view, the maximum amount that could be payable should be
included in the analysis.12
Financial
instruments:
Presentation and disclosure 4217
5.4.2.G
Examples of disclosures in practice
The following extracts from the financial statements of Unilever, Nestlé, Volkswagen
and Royal Bank of Scotland show a variety of ways that companies applied the
requirements of IFRS 7 in practice.
Extract 50.4: Unilever PLC and Unilever N.V. (2014)
Notes to the Consolidated Financial Statements [extract]
16A.
Management of liquidity risk [extract]
The following table shows Unilever’s contractually agreed undiscounted cash flows, including expected interest
payments, which are payable under financial liabilities at the balance sheet date:
€
€
€
€
€
€
€
€
million
million
million
million
million
million
million
million
Net
carrying
amount
Due
Due
Due
Due
as shown
Due
between
between
between
between
Due
in
within
1 and
2 and
3 and
4 and
after
balance
Undiscounted cash flows
1 year
2 years
3 years
4 years
5 years
5 years
Total
sheet
2014
Non-derivative financial liabilities:
Preference
shares
(4)
(4) (4) (4) (4)
(72) (92) (68)
Bank loans and overdrafts
(601)
(257)
(272)
–
–
–
(1,130)
(1,114)
Bonds and other loans
(4,758)
(647)
(1,289)
(511)
(1,418) (4,513) (13,136) (10,573)
Finance lease creditors
(25)
(48)
(23)
(19)
(18)
(172)
(305)
(199)
Other financial liabilities
(230)
– – – –
(188)
(418)
(418)
Trade payables excluding
social security and sundry
taxes (12,051)
(378)
–
–
–
–
(12,429)
(12,429)
Issued financial guarantees
(11)
–
–
–
–
–
(11)
–
(17,680)
(1,334) (1,588) (534) (1,440) (4,945) (27,521) (24,801)
Derivative financial liabilities:
Interest rate derivatives:
Derivatives contracts –
receipts 289
229
230 17 – �
�� 765
Derivative contracts –
payments (429)
(255)
(277)
(19)
–
–
(980)
Foreign exchange derivatives:
Derivatives contracts –
receipts
9,957 2 –
347 – –
10,306
Derivative contracts –
payments
(10,284)
(2) –
(304) – –
(10,590)
Commodity derivatives:
Derivatives contracts –
receipts
405 – – – – –
405
Derivative contracts –
payments
(421)
– – – – –
(421)
(483)
(26) (47)
41
–
– (515) (514)
Total
(18,163)
(1,360) (1,635) (493) (1,440) (4,945) (28,036) (25,315)
4218 Chapter 50
Extract 50.5: Nestlé S.A. (2014)
Notes [extract]
13. Financial
instruments
[extract]
13.2b Liquidity
risk [extract]
Contractual maturities of financial liabilities and derivatives (including interest) [extract]
In millions of CHF
In the
In the
third to
In the
second
the fifth
After the
Contractual
Carrying
first year
year
year
fifth year
amount
amount
Financial assets
27,833
Trade and other payables
(17,437)
(357)
(60)
(1,474)
(19,328)
(19,279)
Commercial paper (a)
(5,573)
–
–
–
(5,573)
(5,569)
Bonds (a)
(672)
(1,419)
(6,403)
(5,042)
(13,536)
(12,257)
Other financial debt
(2,963)
(203)
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 835