There is scope for future research on fair value accounting for liabilities. The prevalence in the South African market can be extended to other financial services sectors including insurance and investment.
A further analysis could be conducted of how the application of the current valuation methodologies affects investors and other users of financial statements and whether they find the financial statements useful. This would be a valuable addition to the accounting industry.
IFRS 13 only became effective for financial periods beginning on or after 1 January 2013, therefore trend analysis of the significance of applying fair value measurements to liabilities in the future would form a worthwhile research topic. An increase in trends may pose unique challenges which should be investigated.
5.7 Conclusion
The conclusion covers the critical research questions that were raised. The results focus on the extend of fair valuing financial liabilities and disclosure compliance with IFRS 7 and IFRS 13. The research contributes significantly to fair value accounting for liabilities in the South African context as this has not been previously researched. Analysis of disclosures also gives a perspective on how the prepares assist users to understand the fair value disclosure of financial liabilities. Fair value of financial liabilities is relevant and significant in the banking sector. This was observed predominantly where judgement and estimation are required. Judgement was found to be significant for liabilities measured at fair value on JSE listed banks, given that only 3% were measured based on quoted prices. Therefore, the Level 1 fair value hierarchy measurement category was less significant. This is due to the fact that liabilities are rarely traded on the open market, hence the non-availability of quoted prices. It is clear that JSE listed banks find Level 2 inputs available for financial liability fair value measurement. There is generally a high level of compliance with IFRS 13 disclosures amongst the observed sample. Currently disclosure requirements are more onerous for Level 3 inputs due to significant unobservable inputs. These were found to be appropriate
42
and generally complied with by JSE listed banks. More disclosure on the Level 2 inputs will also enhance usefulness of the measurement methodologies. Compliance with the related IFRS 7 disclosures was found to be high.
43
ANNEXURE A
DISCLOSURE REQUIREMENT
Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Bank 8 Bank 9 Bank 10
1
IFRS 13 para (a) Fair value at
reporting date
Y Y Y Y Y Y Y Y Y Y
93 (a)-(i)
(b) Fair value hierarchy
level Y Y Y Y Y Y Y Y Y Y i.e Level 1, 2 or 3 (c) Transfers between Level 1 and 2
Y N/A N/A N/A Y N/A N/A N/A N/A N/A
(Including reasons for the transfer and the entity's transfer policy)
For fair value
measurements
categorised within
Level 2 and 3 of the fair value hierarchy,
A description of
valuation
technique(s) and
inputs used in fair value measurement.
(d) Y Y N Y Y N Y Y Y Y
If there has been a change in valuation technique, disclose
the change and
reasons for making it.
44
For fair value
measurements categorised within Level 3 of the fair
value hierarchy,
provide quantitative information about the significant
unobservable inputs used in the fair value measurement.
Y N/A N/A N/A N N/A N/A N/A N/A N
(e) For recurring fair
value
measurements
categorised within
Level 3 of the fair value hierarchy, a reconciliation from the opening to closing balances, disclosing separately changes during the period attributable to the following:
Y N/A N/A N/A Y N/A N/A N/A N/A Y
(i) Total gains or losses
for the period
recognised in profit or loss, and the line item(s) in profit or loss in which those gains
or losses are
recognised.
45
(ii) Total gains or losses
for the period
recognised in other comprehensive income, and the line items(s) in other comprehensive income in which those gains or losses are recognised.
Y N/A N/A N/A Y N/A N/A N/A N/A Y
(iii) Purchases, sales,
issues and
settlements (each of
those types of
changes disclosed
separately).
Y N/A N/A N/A Y N/A N/A N/A N/A Y
(iv) the amounts of any
transfers into or out of Level 3 of the fair value hierarchy, the reasons for those transfers and entity's
own policy for
determining when
transfers between
levels are deemed to have occurred (Per IFRS 13 para 95). Transfers into Level 3 are disclosed and discussed separately from transfers out of Level 3.
Y N/A N/A N/A Y N/A N/A N/A N/A Y
46
(f) For recurring fair
value
measurements within Level 3 of the fair value hierarchy, the amount of the total gains or losses for the period in e(i) included in profit or loss that is attributable to the change in unrealised gains or losses relating to those assets and liabilities held at the end of the reporting period, and the line item(s) in profit or loss in which those unrealised gains or
losses are
recognised.
Y N/A N/A N/A Y N/A N/A N/A N/A Y
(g) For fair value
measurements
categorised within
Level 3 of the fair value hierarchy, a description of the valuation processes used by the entity;
Y N/A N/A N/A Y N/A N/A N/A N/A Y
(h) For recurring fair
value
measurements
categorised within
Level 3 of the fair value hierarchy
47
(i) A narrative
description of the sensitivity of the fair value measurement to
changes in
unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement.
Y N/A N/A N/A Y N/A N/A N/A N/A Y
To comply with the disclosure requirements, the narrative description of the sensitivity changes in unobservable inputs includes at a minimum, the unobservable inputs when complying with (d); and
Y N/A N/A N/A Y N/A N/A N/A N/A Y
Level 3 sensitivity to changes in unobservable inputs (Quantitative for financial instruments) IFRS 13P 94(a), (b) 2 Determine appropriate classes of assets and liabilities on the basis of the following:
48
(a) the nature,
characteristics and risks of the asset or liability; and
Y Y Y Y Y Y Y Y Y Y
(b) the level of the fair value hierarchy within which the fair value
measurement is categorised. Y Y Y Y Y Y Y Y Y Y IFRS13p95 (a)-(c) 4 Disclose and consistently follow
the entity’s policy
for determining
when transfers
between levels of
the fair value
hierarchy are
deemed to have
occurred in
accordance with
IFRS 13 para 93(c)
and (e)(iv). The
policy about the
timing of
recognising
transfers is the
same for transfers into the levels as for transfers out of the levels.
49
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