Disclosure and presentation

Disclosure 
48. 
The purpose of the disclosures required by this Standard is to provide 
information that will enhance understanding of the significance of on-balance-
sheet and off-balance-sheet financial instruments to an entity’s financial 
position, performance and cash flows and assist in assessing the amounts, 

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FINANCIAL INSTRUMENTS: DISCLOSURE AND PRESENTATION 
IPSAS 15 
405
PUBLIC
SEC
T
OR
timing and certainty of future cash flows associated with those instruments. In 
addition to providing specific information about particular financial 
instrument balances and transactions, entities are encouraged to provide a 
discussion of the extent to which financial instruments are used, the associated 
risks and the financial purposes served. A discussion of management’s 
policies for controlling the risks associated with financial instruments, 
including policies on matters such as hedging of risk exposures, avoidance of 
undue concentrations of risk and requirements for collateral to mitigate credit 
risks, provides a valuable additional perspective that is independent of the 
specific instruments outstanding at a particular time. Some entities provide 
such information in a commentary that accompanies their financial statements 
rather than as part of the financial statements. 
49. 
Transactions in financial instruments may result in an entity assuming or 
transferring to another party one or more of the financial risks described 
below. The required disclosures provide information that assists users of 
financial statements in assessing the extent of risk related to both recognized 
and unrecognized financial instruments. 
(a) 
Price risk—There are three types of price risk: currency risk, interest 
rate risk and market risk. 
(i) 
Currency risk is the risk that the value of a financial instrument 
will fluctuate due to changes in foreign exchange rates. 
(ii) 
Interest rate risk is the risk that the value of a financial 
instrument will fluctuate due to changes in market interest rates. 
(iii) Market risk is the risk that the value of a financial instrument 
will fluctuate as a result of changes in market prices whether 
those changes are caused by factors specific to the individual 
security or its issuer or factors affecting all securities traded in 
the market. 
The term price risk embodies not only the potential for loss but also the 
potential for gain. 
(b) 
Credit risk—Credit risk is the risk that one party to a financial 
instrument will fail to discharge an obligation and cause the other party 
to incur a financial loss.
(c) 
Liquidity risk—Liquidity risk, also referred to as funding risk, is the 
risk that an entity will encounter difficulty in raising funds to meet 
commitments associated with financial instruments. Liquidity risk may 
result from an inability to sell a financial asset quickly at close to its 
fair value. For some public sector entities, such as a national 
government, liquidity risks may be mitigated by raising taxes or other 
charges levied by the entity. 

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FINANCIAL INSTRUMENTS: DISCLOSURE AND PRESENTATION 
IPSAS 15 
406
(d) 
Cash flow risk—Cash flow risk is the risk that future cash flows associated 
with a monetary financial instrument will fluctuate in amount. In the case 
of a floating rate debt instrument, for example, such fluctuations result in a 
change in the effective interest rate of the financial instrument, usually 
without a corresponding change in its fair value.