Northern Trust has created an IFRS Valuation Toolkit to assist institutional clients with the additional fair value measurement disclosures required by the International Financial Reporting Standards 7 (IFRS 7) and similar national financial reporting standards.
In March 2009, amendments to IFRS 7, Financial Instruments: Disclosures, introduced a three-level pricing hierarchy to frame disclosures of fair values. Reporting entities are required to analyse their investment portfolios, classify securities into three levels, disclose movements of securities between levels and provide reconciliation from beginning to ending balances (also known as roll-forward reporting) related to transactions for level 3 securities, the most difficult-to-price assets in the marketplace.
“Northern Trust’s toolkit is designed to provide a broad range of documentation, reporting, and recommendations from industry experts to help global custody clients meet IFRS 7 financial reporting disclosure requirements,” said Debra Clayton, client reporting product manager for Northern Trust. “Our toolkit is distinctive in that it automates the process. This delivers assurance of data integrity and enables the client to collate data for their IFRS reporting with greater ease, freeing them from the labour intensive and potentially complex tasks.”
The toolkit consists of customisable level determination reports and various pricing related documents that provide clients with details related to the securities within their portfolios. An important element is level 3 roll-forward reporting, which shows activities and current year change in unrealised gains or losses for level 3 securities held at the end of the year. Level 3 securities have unobservable inputs or uncorroborated prices in the marketplace. Therefore additional footnote disclosures assist investors to better understand the risks associated with investing in these types of investments.
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