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Disclosures
Extracts from FRS 102 section 12.26 – 12.29
12.26 An entity applying this section shall make all of the disclosures required in Section 11 incorporating in those disclosures, financial instruments that are within the scope of this section as well as those within the scope of Section 11. For financial instruments in the scope of this section that are not held as part of a trading portfolio and are not derivative instruments, an entity shall provide additional disclosures as set out in paragraph 11.48A. In addition, if the entity uses hedge accounting, it shall make the additional disclosures in paragraphs 12.27 to 12.29A.
12.27 An entity shall disclose the following separately for each type of hedging relationship described in paragraph 12.19:
(a) a description of the hedge;
(b) a description of the financial instruments designated as hedging instruments and their fair values at the reporting date; and
(c) the nature of the risks being hedged, including a description of the hedged item.
12.28 If an entity uses hedge accounting for a fair value hedge it shall disclose the following:
(a) the amount of the change in fair value of the hedging instrument recognised in profit or loss for the period; and
(b) the amount of the change in fair value of the hedged item recognised in profit or loss for the period.
12.29 If an entity uses hedge accounting for a cash flow hedge it shall disclose the following:
(a) the periods when the cash flows are expected to occur and when they are expected to affect profit or loss;
(b) a description of any forecast transaction for which hedge accounting had previously been used, but which is no longer expected to occur;
(c) the amount of the change in fair value of the hedging instrument that was recognised in other comprehensive income during the period;
(d) the amount, if any, that was reclassified from equity to profit or loss for the period; and
(e) the amount, if any, of any excess of the fair value of the hedging instrument over the change in the fair value of the expected cash flows that was recognised in profit or loss for the period.
12.29A If an entity uses hedge accounting for a net investment in a foreign operation it shall disclose separately the amounts recognised in other comprehensive income in accordance with paragraph 12.24(a) and the amounts recognised in profit or loss in accordance with paragraph 12.24(b).
OmniPro comment
Note if an entity meets the criteria for it to be categorised as a qualifying company, that entity does not have to provide the detailed disclosures in the notes to the financial statements. A qualifying entity is an entity whose parent company prepares consolidated financial statements and these financial statements include the result of that entity but also discloses the details of financial instruments in those financial statements. Note however, any company law requirements still have to be complied with.
See below example disclosure requirements
Example 25: Extract accounting policy notes
Financial instruments
The company has adopted Section 11 and Section 12 of FRS 102 when accounting for financial instruments.
a) Trade and other receivables.
Trade and other receivables including amounts owed to group companies are recognised initially at transaction price (including transaction costs) unless a financing arrangement in exists which case they are measured at the present value of future receipts discounted at a market rate. Subsequently these are measured at amortised cost less any provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. All movements in the level of the provision required are recognised in the profit and loss.
b) Cash and cash equivalents.
Cash and cash equivalents include cash on hand, demand deposits and other short- term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.
c) Other financial assets.
Other financial assets include investment which are not investments in subsidiaries, associates or joint ventures. Investments are initially measured at fair value which usually equates to the transaction price and subsequently at fair value where investments are listed on an active market or where non listed investments can be reliably measured. Movements in fair value is measured in the profit and loss.
Where fair value cannot be measured reliably or can no longer be measured reliably, investments are measured at cost less impairment.
d) Trade and other payables.
Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables, other payable and amounts due to group companies are recognised initially at the transaction price net of transaction costs and subsequently measured at amortised cost using the effective interest method.
e) Borrowings.
Borrowings are recognised initially at the transaction price (present value of cash payable to the bank, including transaction costs). Borrowings are subsequently stated at amortised cost. Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the Company has a right to defer settlement of the liability for at least 12 months after the reporting date.
Preference shares, which are mandatorily redeemable on a specific date, are classified as borrowings. The dividends on these preference shares are recognised in the income statement as a finance cost.
f) Derivatives.
Derivatives are initially measured recognised at fair value on the date the contract is entered into and subsequently re-measured at their fair value. Changes in the fair value are recognised in the profit and loss within finance costs or finance income as appropriate, unless they are included in a hedging arrangement.
Derivative financial instruments are not basic.
Hedge accounting is not applied.
OR WHERE HEDGE ACCOUNTING IS APPLIED
Derivative financial instruments are used to manage the Group’s exposure to foreign currency risk and interest rate risk through the use of forward currency contracts and interest rate swaps. These derivatives are generally designated as cash flow hedges in accordance with Section 12. The Group does not enter into speculative derivative transactions.
g) Derecognition.
Financial liabilities are derecognised when the liability is extinguished, that being when the contractual obligation is discharged.
h) Offsetting financial instruments.
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
i) Compound financial instruments.
Compound financial instruments issued by the company comprise of convertible preference shares which can be converted to a set amount of ordinary shares at a future date. The liability component of the compound instrument is initially recognised at the fair value of a similar liability where the conversion to equity option is not available. Subsequently this is measured at amortised cost using the effective interest rate method. The equity component is measured the difference between the fair value of the liability component and the fair value of the instrument as a whole. The equity component is not re-measured. Transaction costs are apportioned to the equity and liability component as a proportion that each type instrument is to the total fair value of the compound instrument.
j) Hedge accounting
Cash flow hedges
Subject to the satisfaction of certain criteria, relating to the documentation of the risk, objectives and strategy for the hedging transaction and the ongoing measurement of its effectiveness, cash flow hedges are accounted for under hedge accounting rules. In such cases, any unrealised gain or loss arising on the effective portion of the derivative instrument is recognised in the cash flow hedging reserve, a separate component of equity and posted to other comprehensive income. Unrealised gains or losses on any ineffective portion of the derivative are recognised in the income statement. When the hedged transaction occurs the related gains or losses in the hedging reserve are transferred to the Income Statement.
The company engages in hedge accounting for forward contracts in order to manage foreign currency fluctuations as well as interest rate swaps.
Changes in fair values of derivatives designated as cash flow hedges which meet the conditions for hedge accounting are recognised in directly in equity through other comprehensive income to the extent that they are effective. Any ineffectiveness is charged to the profit and loss. Any gain or loss recognised in OCI is transferred from equity to the profit and loss when the hedge relationship ends.
Cash flow hedges are those of highly probable forecasted future income or expenses. In order to qualify for hedge accounting, the Group is required to document the relationship between the item being hedged and the hedging instrument and demonstrate, at inception, that the hedge relationship will be highly effective on an ongoing basis. The hedge relationship must be tested for effectiveness on subsequent reporting dates.
There is no significant difference between the timing of the cash flows and income statement effect of cash flow hedges.
Example 26: Extract of notes to the financial statements – Financial instruments note disclosures
| 2015 | 2014 | |
| Financial assets at fair value through profit or loss | ||
| Listed investments | 2,000 | 3,000 |
| Financial assets that are equity instruments measured at cost less impairment | ||
| Investments (see note 2) | 10,000 | 10,000 |
| Loan commitment carried at cost less impairment | 1,000 | 500 |
| Financial assets that are debt instruments measured at amortised cost | ||
| Intercompany loans | 100,000 | 90,000 |
| Loan notes | 80,000 | 75,000 |
| Other debtors including deposits receivable | 40,000 | 41,000 |
| Trade debtors | 30,000 | 15,000 |
| Cash and short term deposits | 30,000 | 15,000 |
| Financial liabilities at fair value through profit and loss | ||
| Derivative financial instruments – Forward foreign contracts (see note 1) | 3,000 | 2,000 |
| Derivative financial instruments – Interest rate swap | XXX | XXX |
| Financial liabilities measured at amortised cost | ||
| Trade creditors | 20,000 | 10,000 |
| Intercompany loans | 20,000 | 10,000 |
| Accounts payable | 20,000 | 10,000 |
| Finance leases | 20,000 | 10,000 |
| Bank loans and loan notes | 20,000 | 10,000 |
| Accruals for goods and services | 20,000 | 10,000 |
| Bank overdraft | 20,000 | 10,000 |
Note 1: The company takes out foreign currency contracts to hedge against the risk of foreign exchange movements. At 31 December 2015, the company had forward contracts to purchase GBP£100,000 at a rate of €1:£.80. These contracts expire within 6 months of the year end. The fair value of these instruments at 31 December 2015 was €10,000 (2014:€2,000). This has been recognised in the profit and loss. The forward contracts are measured at fair value by utilising observable market date, more specifically quoted prices.
OR WHERE HEDGING IS APPLIED Derivatives – forward foreign exchange contracts Forward foreign exchange contracts are marked to market using quoted forward exchange rates at the reporting date. The absolute principal amount of the outstanding forward foreign exchange contracts at 31 December 2015 was €XXXX (2014: €XXXXXXX). The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next 12 months. Gains and losses recognised in the hedging reserve in equity (note XX) on forward foreign exchange contracts as of 31 December 2015 are recognised in the profit and loss in the period or periods during which the hedged transaction affects the income statement. This is generally within 12 months of the end of the reporting period. Derivatives – Interest Rate Swaps The fair value of interest rate swaps is calculated as the present value of the expected future cash flows based on observable yield curves. The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2015 were €xxxxx (2014: €xxxxxx). At 31 December 2015, the average fixed interest rate on the swap portfolio was X% (2014: X%). The main floating rates are EURIBOR and LIBOR. Gains and losses recognised in the hedging reserve in equity (note XX) on interest rate swap contracts as of December 2015 will be continually released to the income statement within finance cost until the maturity of the relevant interest rate swap. Note 2: At the year end the fair value of certain equity investments could not be determined. As a result the carrying value prior to this date has now been deemed to be the cost of the investments
Example 27: Extract of notes to the financial statements – interest disclosures
| Note: Interest receivable and similar income | 2015 | 2014 | ||||
| Bank interest receivable | 10,000 | 5,000 | ||||
| Interest on intra-group loans | 2,000 | 0 | ||||
| Economic benefits provided on inter-group loan (see (i) below) | 200,000 | 0 | ||||
| Interest income on other financial assets | 1,000 | 1,000 | ||||
| Total interest income on financial assets not measured at fair value through profit and loss i.e. on an amortised cost basis | 13,000 | 6,000 | ||||
| Gain on derivative financial instruments | 1,000 | 2,000 | ||||
| Total interest receivable and similar income | 12,000 | 4,000 |
- On XX March 2015, the Company provided a €1,000,000 interest free loan to a fellow subsidiary company.
Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loans issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the company recognised the loan for €800,000. The difference between the nominal amount of the loan and the initial fair value is €200,000. As this is not a financial asset, nor do the Company view this as a cost of an investment in a subsidiary, this amount is recognised as an expense upon initial recognition. 
- On XX March 2015, the Company obtained a €1,000,000 interest free loan from a fellow sister company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loan issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for €700,000. The difference between the nominal amount of the loan and the initial fair value is €300,000. As this is not a financial liability, nor do the Company view this as a capital contribution from a sister company, this amount is recognised as an income upon initial recognition.
- In accordance with Section 11 as the Company received loans as detailed above at non market rates, the Company recognised these loans at their estimated fair value at the issuance date as detailed in note 13. At the year end the estimated fair value of the loan for €1,000,000. The additional interest arising in the current year upon the application of a market interest rate is €100,000.
Example 28: Extract of notes to the financial statements – debtors disclosures incorporating financial instrument requirements
| TRADE AND OTHER RECEIVABLES | ||
| 2015 | 2014 | |
| € | € | |
| Trade debtors | 1,022,788 | 1,083,813 |
| Other debtors | 279,008 | 57,864 |
| Amounts owed by group companies (see (i) below) | 790,000 | 0 |
| Prepayments | 20,795 | 12,710 |
| Directors’ Loans | 112,633 | 104,332 |
| VAT | 30,090 | 13,614 |
| 2,225,224 | 1,272,333 |
The fair values of trade and other receivables approximate to their carrying amounts. Trade debtors are stated after provisions for impairments of €105,000 (2014: €113,000).
Amounts owed by directors are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
i) On XX March 2015, the Company obtained a €1,000,000 interest free loan from a fellow sister company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loan issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for €700,000. The difference between the nominal amount of the loan and the initial fair value is €300,000. As this is not a financial liability, nor do the Company view this as a capital contribution from a sister company, this amount is recognised as an income upon initial recognition.
| Extract of notes to the financial statements – creditors disclosures incorporating financial instrument requirements TRADE AND OTHER PAYABLES | ||
| 2015 | 2014 | |
| € | € | |
| Trade creditors | 669,675 | 475,652 |
| Other creditors and accruals | 186,051 | 178,139 |
| Bank Loans and overdrafts | 1,066,950 | 2,064,128 |
| Amount due to group company (see (i) below) | 688,000 | 0 |
| Finance Lease | 31,198 | 39,933 |
| Derivative financial instruments | 3,000 | 2,000 |
| Corporation tax due | 280,351 | 64,812 |
| Other Taxation and Social Security | 25,665 | 26,245 |
| Deferred Tax | 2,856 | – |
| 2,953,746 | 2,850,909 | |
(i) The company received loans totalling €1,000,000 at non market rates from a fellow sister company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loan issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for €700,000. The difference between the nominal amount of the loan and the initial fair value is €300,000. As this is not a financial liability, nor do the Company view this as a capital contribution from a sister company, this amount is recognised as an income upon initial recognition.
BORROWINGS
| Within 1 year | Between 1 & 2 years | Between 2 & 5 years | After 5 years | Total | ||
| € | € | € | € | € | ||
| Repayable other than by installments | ||||||
| Bank Overdrafts | 0 | 0 | 0 | 0 | 0 | |
| Repayable by installments | ||||||
| Term loan | 13,740 | – | 1,053,210 | – | 1,066,950 |
The bank facilities are secured by a debenture incorporating fixed and floating charges over the assets of the company and personal guarantees from the Directors.
The facilities expiring within one year are annual facilities subject to review at various dates during 2015/2016. The rate of interest applied on these loans is 4%.
The loan outstanding within 2 to 5 years is repayable on 30 November 2015 and an interest rate of 5% is applied on this loan.
FINANCIAL ASSETS
| At fair value | At cost less impairment | Total | |
| € | € | € | |
| Costs | |||
| At beginning of year | 200,000 | 100,000 | 300,000 |
| Additions in year | 30,000 | 30,000 | |
| Fair value adjustments | (20,000) | – | (20,000) |
| Disposals in year | – | (20,000) | (20,000) |
| At end of year | 180,000 | 110,000 | 290,000 |
| Amounts provided | |||
| At beginning of year | – | – | – |
| Movement | – | (10,000) | (10,000) |
| At end of year | – | (10,000) | (10,000) |
| Carrying amount | |||
| At 31 December 2015 | 180,000 | 100,000 | 280,000 |
The fair value of the listed investments at 31 December 2015 is €180,000 (2014: 200,000).
Other investments are not listed and are held at cost less impairment as fair value cannot be reliably measured.
Extract from other comprehensive income to illustrate the disclosure requirements under Section 12.
Example 29: Extract from other comprehensive income showing activity on cash flow hedges
Consolidated Statement of Comprehensive Income
| Profit for the financial year | 1,000,000 | 500,000 |
| Exhange differences on retranslation of foreign operations | XXX | XXX |
| Cash flow hedges | ||
| – effective portion of changes in fair value to cash flow hedges | 9 XXX | XXX |
| – fair value of cash flow hedges transferred to income statement | 10 XXX | XXX |
| Actuarial loss in respect of the defined pension scheme | 11 (XXX) | (XXX) |
| Gain/(loss) on revaluation of intangible assets | 12 XXX | (XXX) |
| Gain/(loss) on revaluation of property, plant and equipment | 13 XXX | (XXX) |
| Gain/(loss) on revaluation of subsidiaries, associates, etc. | 14 XXX | (XXX) |
| Deferred tax on components of other comprehensive income | 15 XXX | XXX |
| Total other comprehensive income for the year net of tax | 200,000 | (100,000) |
| Total comprehensive income for the year | 1,200,000 | 400,000 |
| Total comprehensive income for the financial year attributable to: Non-controlling interests | XXXX | XXXX |
| Owners of the parent company | XXX | XXX |
| 1,200,000 | 400,000 |
Example 30: Extract from the Changes in Equity showing the movement on the cash flow hedge reserve in line with Section 12 disclosure requirements
| Equity Share | Revaluation | Other | Retained | Cash flow hedge | Total attributable | Non-controlling | Total | |
| To the | ||||||||
| Capital | Reserve | Reserve | Earnings | Reserve | Parent | Interest | Equity | |
| € | € | € | € | € | € | € | € | |
| Balance at 1 January 2014 | 100,000 | 225,000 | 115,375 | 115,375 | 1,000 | 331,375 | 100,000 | 441,375 |
| Changes in ownership interests in subsidiaries which do not result in a loss of control | (100,000) | – | ||||||
| Profit for the year | 10,000 | 83,818 | 91,818 | 2,000 | 93,818 | |||
| Balance at 31 December 2014 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 2,000 | 535,193 | |
| Balance at 1 January 2015 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 0 | 0 | 535,193 |
| Equity Shares issued net of issue costs | 20,000 | 30,000 | ||||||
| Profit for the year | 1,005,772 | 1,005,772 | 10,000 | 1,005,772 | ||||
| Equity dividends paid (see note XX) | (9,900) | (9,900) | (100) | (10,000) | ||||
| Capitalisation of shares | 1,000 | (1,000) | – | – | ||||
| Other Comprehensive Income | (15,000) | (15,000) | (15,000) | (15,000) | ||||
| Balance at 31 December 2015 | 109,000 | 225,000 | (14,000) | 1,214,965 | (15,000) | XXXX | 10,100 | 1,554,965 |
Cash flow hedge reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred since XXXXX.
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