1.6 Financial Assets and Financial Liabilities (Impairment, Hedging, Embedded Derivatives and Disclosures)

The topic you mentioned covers various aspects of financial assets and financial liabilities under International Financial Reporting Standards (IFRS). I’ll provide a brief summary of each area you mentioned:

1. Impairment of Financial Assets: IFRS 9 sets out the principles for recognizing and measuring impairment of financial assets. It requires entities to assess whether there has been a significant increase in credit risk since initial recognition and, if so, to recognize an allowance for expected credit losses. The standard introduces a forward-looking approach, requiring the recognition of expected credit losses based on reasonable and supportable information.
2. Hedging: IFRS 9 also provides guidance on hedge accounting, allowing entities to mitigate the impact of volatility in fair value or cash flows of recognized assets, liabilities, or forecasted transactions. It introduces a more principles-based approach, aligning hedge accounting more closely with risk management activities. It introduces the concept of hedge effectiveness and provides criteria for hedge designation and measurement.
3. Embedded Derivatives: IFRS 9 and IAS 39 (the previous standard) require entities to assess whether a financial instrument contains an embedded derivative that needs to be separated and accounted for separately from the host contract. An embedded derivative is a component of a hybrid financial instrument that embodies a risk that is different from the risk inherent in the host contract.
4. Disclosures: IFRS 7 sets out disclosure requirements for financial instruments, including financial assets and financial liabilities. It requires entities to provide information about the significance of financial instruments for an entity’s financial position and performance, the nature and extent of risks arising from financial instruments, and the entity’s risk management objectives and policies.