1. What IND AS 107 Covers — Objective and Scope
IND AS 107 requires entities to provide disclosures that enable users to evaluate the significance of financial instruments to the entity's financial position and performance, and the nature and extent of risks arising from financial instruments to which the entity is exposed, and how the entity manages those risks. It is a pure disclosure standard — it doesn't govern recognition or measurement (that's IND AS 109) — and applies to virtually all entities holding or issuing financial instruments.
2. Significance of Financial Instruments
Disclosures here include the carrying amounts of each category of financial asset and liability under IND AS 109 (amortised cost, FVOCI, FVTPL), items of income, expense, gains and losses arising from financial instruments (interest income/expense, fee income, net gains/losses by category), and information about hedge accounting relationships and their effectiveness.
3. Credit Risk Disclosures
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation, causing a financial loss. Disclosures include information about the entity's credit risk management practices, a reconciliation of the opening to closing loss allowance balance by class of financial instrument (tying directly to IND AS 109's expected credit loss model), an analysis of credit quality for assets neither past due nor impaired, and how the entity determines whether credit risk has increased significantly since initial recognition — the trigger for moving from a 12-month to a lifetime expected credit loss basis.
4. Liquidity Risk and the Maturity Analysis
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with its financial liabilities. The key required disclosure is a maturity analysis for non-derivative (and separately, derivative) financial liabilities, showing the remaining contractual maturities based on undiscounted cash flows, grouped into time bands (e.g. less than 1 year, 1-5 years, more than 5 years) — this reveals the timing of contractual cash outflows that the balance sheet's discounted carrying amounts don't show on their own.
5. Market Risk and Sensitivity Analysis
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, split into three types:
| Type | Example |
|---|---|
| Currency risk | Exposure from financial instruments denominated in a foreign currency |
| Interest rate risk | Exposure from floating-rate borrowings or investments |
| Other price risk | Exposure from equity investments, commodity-linked instruments, etc. |
For each type of market risk, IND AS 107 requires a sensitivity analysis showing how profit or loss and equity would have been affected by reasonably possible changes in the relevant risk variable at the reporting date (e.g. a 1% movement in interest rates, or a 5% movement in a foreign exchange rate), together with the methods and assumptions used to prepare that analysis, and any changes from the prior period in those methods and assumptions.
6. The Fair Value Hierarchy Cross-Reference
For financial instruments measured at fair value, IND AS 107 requires disclosure of which fair value hierarchy level (Level 1, 2 or 3, as defined in IND AS 113) each instrument falls into, transfers between levels during the period, and — for Level 3 instruments specifically — a reconciliation of opening to closing balances and a sensitivity analysis to reasonably possible alternative unobservable inputs.
7. Worked Example — An Interest Rate Sensitivity Table
Scenario: Devgiri Infrastructure Ltd has floating-rate borrowings of ₹40,00,00,000 at the reporting date, linked to a benchmark rate. Management assesses a reasonably possible movement in interest rates as +/- 1% for the coming year.
| Scenario | Impact on annual interest expense (₹) | Impact on profit before tax (₹) |
|---|---|---|
| Interest rates increase by 1% | +40,00,000 | (40,00,000) |
| Interest rates decrease by 1% | (40,00,000) | +40,00,000 |
This disclosure tells users that a 1% adverse movement in the benchmark rate would reduce Devgiri's profit before tax by ₹40,00,000 annually — information the balance sheet's carrying amount of the borrowing (which doesn't reflect future rate movements) can't convey on its own.
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These three standards work as a set: IND AS 109 decides how a financial instrument is classified and measured; IND AS 113 provides the methodology for determining fair value wherever it's used; and IND AS 107 requires the disclosures that explain those classification/measurement choices to users and quantify the resulting risk exposures. A change in an entity's IND AS 109 classification policy, or its risk management approach, directly changes what IND AS 107 requires it to disclose.
9. Other Disclosures Required
Additional disclosures include the total interest income and expense (calculated using the effective interest method) for financial assets/liabilities not at FVTPL, fee income and expense arising from financial instruments not at FVTPL, any impairment losses on each class of financial asset, and — where an entity has reclassified financial assets between measurement categories — the amount reclassified and the reason.
10. Common Mistakes CAs Make
Error 1 — Presenting the maturity analysis on a discounted basis. Liquidity risk maturity analysis must use undiscounted contractual cash flows — using discounted (balance sheet) amounts understates the true future cash outflow and defeats the purpose of the disclosure.
Error 2 — Choosing an unrealistically narrow sensitivity range. The sensitivity analysis must reflect a "reasonably possible" change in the risk variable, based on the actual volatility observed for that entity's specific exposures — not an arbitrarily small percentage chosen to make the disclosed impact look immaterial.
Error 3 — Omitting the fair value hierarchy level for instruments measured at fair value. This disclosure is mandatory wherever fair value measurement is used, cross-referencing IND AS 113's Level 1/2/3 classification — it's frequently missed for less commonly fair-valued instrument types.
Error 4 — Providing generic risk management boilerplate without entity-specific quantification. IND AS 107 expects quantitative disclosures (reconciliations, maturity bands, sensitivity figures) alongside qualitative risk management commentary — narrative alone doesn't satisfy the standard's requirements.
Error 5 — Not reconciling the ECL loss allowance movement by class of instrument. The credit risk disclosures require this reconciliation broken down meaningfully (e.g. by trade receivables, loans, investments) — a single blended total across all financial assets doesn't provide the granularity the standard expects.
11. FAQs
What are the three risk categories IND AS 107 requires disclosures for?
Credit risk (the risk a counterparty will fail to discharge an obligation, causing a financial loss), liquidity risk (the risk an entity will have difficulty meeting obligations associated with financial liabilities), and market risk (the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, split into currency risk, interest rate risk, and other price risk).
What is a maturity analysis and why is it required?
A maturity analysis for non-derivative financial liabilities shows the remaining contractual maturities, based on undiscounted cash flows, grouped into time bands (e.g. less than 1 year, 1-5 years, more than 5 years). It is required as part of liquidity risk disclosure because it lets users assess the timing of cash outflows the entity has contractually committed to, which the balance sheet's discounted carrying amounts alone don't reveal.
What is sensitivity analysis under IND AS 107?
For each type of market risk to which an entity is exposed at the reporting date, IND AS 107 requires a sensitivity analysis showing how profit or loss and equity would have been affected by reasonably possible changes in the relevant risk variable (e.g. a 1% change in interest rates, or a 5% change in a foreign exchange rate), along with the methods and assumptions used in preparing that analysis.
How does IND AS 107 relate to IND AS 109 and IND AS 113?
IND AS 109 governs recognition and measurement of financial instruments, and IND AS 113 governs how fair value itself is determined (the fair value hierarchy). IND AS 107 sits alongside both, requiring the disclosures that let users understand the significance of financial instruments to an entity's financial position and performance, and the nature and extent of the risks arising from them — including disclosing the fair value hierarchy level for instruments measured at fair value, using IND AS 113's Level 1/2/3 classification.
What credit risk disclosures does IND AS 107 require under the expected credit loss model?
An entity discloses information about its credit risk management practices, a reconciliation of the opening to closing loss allowance balance by class of financial instrument, an analysis of the credit quality of financial assets that are neither past due nor impaired, and how it determines whether credit risk has increased significantly since initial recognition (the trigger for moving from a 12-month to a lifetime expected credit loss measurement under IND AS 109).
Is IND AS 107 the same as IFRS 7?
IND AS 107 is India's converged version of IFRS 7 and follows the same risk-category disclosure structure, sensitivity analysis requirements, and maturity analysis for liquidity risk. As a pure disclosure standard, it has very few substantive India-specific carve-outs — its content is driven largely by whatever IND AS 109 classification and measurement choices an entity has made, since disclosures must explain those choices and their resulting risk exposures.