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ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments

Delta plc has a floating-rate loan of $50 million and no other interest-bearing items. It presents a sensitivity analysis under IFRS 7 showing that a 1% (100 basis points) rise in interest rates would reduce profit by $0.5 million. Which statement about this disclosure is correct?

This is a market risk disclosure. IFRS 7 requires a sensitivity analysis for each type of market risk, with the methods and assumptions used explained. Holding the loan at amortised cost does not exempt it, because the floating rate still creates profit exposure.

  1. AIt is market risk disclosure, and the entity must state the methods and assumptions used in the analysisCorrect
  2. BIt is liquidity risk disclosure, and no assumptions need be stated
  3. CIt is credit risk disclosure and applies only to financial assets
  4. DIt is optional because the loan is at amortised cost

Explanation

Sensitivity analysis of reasonably possible changes in relevant risk variables is market risk disclosure. IFRS 7 requires disclosure of the methods and assumptions used. Amortised cost classification does not remove the requirement, since exposure to interest rate risk still exists.

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