Assessing financial instruments to determine their measurement basis and accounting treatment and then applying fair value, if appropriate, can be difficult.
The assessment of whether a financial instrument is measured at cost, amortised cost or fair value is driven by its contractual terms, the effects on the cash flows of the business and the reasons for holding the instrument.
The terms of a financial instrument contract can be difficult to interpret and then you still have to understand and apply the requirements of the relevant accounting standards. Once it has been determined that an instrument needs to be measured at fair value, the requirements of IFRS 13 need to be applied.
Determining the fair value of a financial instrument can also be complex, involving judgement in relation to the valuation methodology, observable and non-observable market data, identifying and assessing comparable instruments, and non-performance risk to name a few.
Examples of instruments that need to be fair valued include:
- derivative contracts;
- equity investments;
- certain debt instruments;
- compound financial instruments;
- embedded derivatives; and
- share warrants.
How can we help?
We can provide:
- an assessment of financial instruments to determine their measurement basis and accounting treatment;
- fair value assessments supported by detailed calculations which comply with the relevant accounting standards;
- hedge accounting advice and effectiveness testing;
- relevant disclosure notes; and
- detailed reports to support the accounting treatment and valuations for audit purposes.