Disclosure Requirements: What the AFS Must Say About Financial Instruments

18 Aug

Preview

This article will count 0.25 units (15 minutes) of unverifiable CPD. Remember to log these units under your membership profile.

Once you have recognised, measured, and reviewed financial instruments, the final step is to disclose the right information in the notes to the Annual Financial Statements (AFS). This is not just a formality. Proper disclosure helps users of the financial statements understand the financial risks, balances, and assumptions involved.

This article explains what disclosures are required under Part I of Section 11 of the IFRS for SMEs Standard. It focuses on what applies to most SMEs and highlights common areas where disclosures are often missed in practice.

Why Disclosures Matter

Disclosures show what lies behind the numbers. They explain how assets and liabilities were measured, what risks are involved, and whether any losses are expected. Independent Reviewers rely on these notes to understand if financial instruments were treated correctly. Omitting or misclassifying these disclosures can lead to questions during the review, reputational risk for the accountant, or even unreliable financials.

What Must Be Disclosed?

According to paragraphs 11.39 to 11.48 of the standard, financial instruments measured under Part I (which includes most loans, receivables, payables, and some investments) must include the following disclosures:

Accounting Policies

You must state the measurement basis used for financial instruments. This is usually one or more of the following:

Amortised cost
Cost
Fair value (only if reliably measurable without undue cost or effort)

Make this clear in your accounting policies. For example:

“Financial assets are measured at amortised cost using the effective interest method. Trade receivables are stated at the amount expected to be collected.”

Categories and Balances

You must show the carrying amount of each category of financial asset and liability. This can be included in the notes or on the face of the AFS.

For example, you can show:

Break it down clearly and include totals that match the face of the financial statements.

Impairment

If any financial assets were impaired, you must:

Disclose the amount of the impairment loss,
Explain how the loss was calculated (for example, based on default or estimated recoverable cash flows),
Show whether the loss was recognised through an allowance account or directly against the asset.

Example note:

“During the year, trade receivables of R15,000 were impaired due to non-payment by a major customer. The loss was recognised through an allowance for doubtful debts.”

Maturity Analysis for Liabilities

You must include a maturity table showing when financial liabilities are due. This helps users see the timing of cash outflows.

A typical table might look like this:

Use time bands that make sense based on the type of liabilities. This is especially important when the business has loans, lease liabilities, or repayment terms beyond 12 months.

Aging of Trade Receivables

You must disclose an age analysis of trade receivables that are measured at amortised cost. This shows which amounts are current and which are overdue.

Example format:

You must also show any impairment allowances linked to the overdue amounts.

Fair Value Disclosure (if applicable)

If any financial instruments are measured at fair value, you must state:

How the fair value was determined,
Where the inputs came from (market price, model, etc),
Whether fair value was used because it was reliably measurable.

If fair value could not be measured reliably, and cost was used instead, you must explain that as well.

Example disclosure:

“The investment in XYZ (Pty) Ltd was measured at cost of R50,000, as the fair value could not be reliably determined without undue cost or effort.”

Defaults and Breaches

If the business has any loans that are in default or breached, this must be disclosed. Include:

Details of the breach (missed payments, covenant failure),
The amount involved,
Whether the issue was fixed before the financials were authorised.

Example:

“The company breached the repayment terms of the ABC Bank loan by failing to make the February instalment. The breach was rectified in March after renegotiating the loan terms.”

Common Disclosure Mistakes

Independent Reviewers often pick up these recurring issues in practice:

The accounting policy is missing or incomplete
No impairment disclosure even when aged receivables show long overdue amounts
Loans are disclosed without showing repayment terms or maturity dates
No aging of trade receivables is included
Investments at cost are disclosed without explaining why fair value was not used
Breaches of loan terms are not disclosed, even when obvious in bank letters

As the preparer or reviewer, you are responsible for ensuring that financial instruments are both correctly recorded and properly disclosed.

Final Thought

Disclosures are not just technical add-ons. They help business owners, creditors, and reviewers understand the risks, values, and expectations related to financial assets and liabilities. As a CIBA Business Accountant in Practice, your role is to make these disclosures accurate, clear, and useful.

Doing this helps build trust in the financial statements and strengthens your reputation as a reliable professional.

Join us here for the CIBA Practice Management Conference 2025 – designed for accountants and tax professionals who want to grow smarter, not busier.

Make Your Firm Irresistible in 2025

The accounting world is changing fast. Clients expect more, technology evolves daily, and managing a practice is more complex than ever.

Join us for the CIBA Practice Management Conference 2025 – designed for accountants and tax professionals who want to grow smarter, not busier. Learn how to future-proof your firm, boost revenue with innovative models, protect what you’ve built, and harness tech that actually delivers results.

📅 Early Bird (50% off) ends 15 August
🎯 In-person or online – from only R340

✅ Practical, actionable sessions from top industry leaders
✅ Topics covering pricing, tech, governance, tax, ethics, and more
✅ Networking, recognition, and real tools you can use the next day

📍 Secure your spot here now – and start building the practice your future demands.

Choose Your Path to Exclusive Insights

Stay ahead in the world of accounting with premium content designed for professionals like you. Access expert articles, industry trends, and essential resources. Become a CIBA member and claim your CPD hours from CIBA.