IFRS 7 and Risk Disclosure Policies: A Cross-Sectional Analysis of Italian Listed Banks

20 Pages Posted: 2 Oct 2013

See all articles by Sabrina Pucci

Sabrina Pucci

University of Rome III

Marco Tutino

Roma Tre University - Department of Business Studies

Date Written: April 1, 2013

Abstract

This paper has a double aim, to give a theoretical evaluation of the disclosure model chosen by IASB referring to market risks of financial instruments and to analyze the practical solutions adopted in the case of a sample of listed banks and compliance of the information referring to risk in the “Notes” with the requirements of IFRS 7. In order to investigate the effectiveness of “IFRS 7, Financial Instruments”, the research has been conducted considering Annual Report of a sample of 17 banking companies, all listed in the three-year period (2008-2010) in Italian financial markets. Studying a three-year period should reveal the performance of IFRS 7 in fostering market discipline by pressing banks to disclose more information regarding risk profile elements, mainly considering market risks such as interest rate risk, currency risk, and price risk, and then making financial disclosure more transparent. A content analysis has been adopted through a cross-sectional and time series study. The results underline that IFRS 7 improves the disclosure of market risks in financial statements compared with previous years even if a better equilibrium between qualitative and quantitative information could be found. In the sample analysed, substantial compliance with IFRS 7 requirements has been found, except for some particularly sensitive information. In some cases quantitative information cannot be considered sufficient to inform on potential impact of changes in risks exposure on the actual and expected value of income and equity of entities.

Keywords: IFRS 7, financial instruments, risk management, risk disclosure, accounting principles, banks

JEL Classification: M41, M42, M48

Suggested Citation

Pucci, Sabrina and Tutino, Marco, IFRS 7 and Risk Disclosure Policies: A Cross-Sectional Analysis of Italian Listed Banks (April 1, 2013). China-USA Business Review, April 2013, Vol. 12, No. 4, 409-426. Available at SSRN: https://ssrn.com/abstract=2334121

Sabrina Pucci

University of Rome III ( email )

Via Ostiense, 159
Rome, RM 00154
Italy

Marco Tutino (Contact Author)

Roma Tre University - Department of Business Studies ( email )

Via Silvio D'amico, 77
Rome, Rome 00145
Italy

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