A growing scope of design often has a downside also. With leasing, Mezzanine and Co. offer a variety of sources of financing in addition to the classic bank credit. However, the combination of different forms of debt financing and equity financing entails many risks for the company and the lenders. The new International Accounting Standards (IFRS 7), which oblige management to undertake systematic and open risk management, are to be remedied.
The new regulations pose a growing challenge to finance and accounting. Reporting must be supplemented by information on the credit, liquidity and market risks of financial instruments. At the same time, the final report provides for an assessment of all risks. The associated additional costs create transparency for existing and future investors. At the same time, companies can also benefit from disclosure rules. Professor Dr. Thomas Kümpel, Vice-Rector of the Essen University of Economics and Management (FOM) and member of the advisory board of the Federal Association of Chartered Accountants and Controllers (BVBC) confirms: “A comprehensive risk management secures both operational and strategic business decisions.”
New Requirements For Reporting Under IFRS 7
The nature and use of financial instruments are becoming more and more transparent. Lenders and investors should be able to better assess and compare the financial situation of companies. According to IFRS 7, some new requirements arise for reporting purposes.
Clarify the value: The importance of financial instruments for the profitability of a company should be clear in the industry comparison. The more frequently a financing form is used, the more extensive are the disclosure requirements.
Identify risks: the nature and extent of the risks arising from financial instruments are quantified and presented in qualitative terms. Relevant for the reporting are all information available to the company management.
Assessing Risk Management: A detailed description of risk management objectives and methods provides a comprehensive insight into the risk structure of a company. And, changes to the previous period are to be disclosed.