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Hedge accounting

Example 9

Lau Co is a UK based company, which is funded by a combination of ordinary
shares and fixed rate bank borrowings denominated in British pounds (GBP).
It has no surplus cash.

The company manufactures electrical switches and sells them to retail outlets
in the UK, allowing credit of 60 days. Most of Lau Co's raw materials are
sourced locally, but some are imported from the eurozone, where the currency
is the euro (EUR).

Which THREE of the following should Lau Co consider disclosing in its
financial statements according to IFRS 7 Financial Instruments:
Disclosures?

A Credit risk management policy

B Aged debtor analysis

C The impact of adverse exchange rate movements on reported profit

D Proportion of spending on infrastructure projects

E Emissions of greenhouse gases

Solution

The answer is (A), (B) and (C).

(D) and (E) would be disclosed in a sustainability report following the GRI G4
guidelines. They are not required by IFRS 7.

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