Disclosures in the Notes | Derivatives Compass

Derivative disclosure in the notes is the set of requirements to state, in the notes to the financial statements, the contract amounts and fair values of derivatives, the status of hedge accounting and how risk is managed. Japanese GAAP, IFRS 7, and ASC 815 and ASC 820 differ in the items they require and in the form of the tables.

You can use this page when you prepare the notes on derivatives, or when you gather the underlying data (trade details, fair values, hedge designations, and offsetting and collateral data), to check which items each standard requires.

What the notes convey

The notes are the part of the financial statements, separate from primary statements such as the balance sheet and the income statement, that adds supplementary information. Accounting policies, breakdowns of primary-statement line items and risk information appear there¹. Some derivatives are carried on the balance sheet at fair value (Japanese GAAP uses a term that literally means "market value"; IFRS and US GAAP use "fair value"), and some have their gains and losses deferred under hedge accounting. The figures in the primary statements alone do not show how much a company holds or how it hedges. For that reason each standard sets out items that the notes must add.

The items the notes must add differ among Japanese GAAP, IFRS 7 under IFRS, and ASC 815 and ASC 820 under US GAAP (the ASC is the Accounting Standards Codification). The definition of the fair value hierarchy is covered in Fair Value Measurement: IFRS 13, ASC 820 and the Fair Value Hierarchy.

Notes under Japanese GAAP

This section covers the rules for financial statements under the Financial Instruments and Exchange Act. The notes to consolidated financial statements are set by the Regulation on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements (the "consolidated regulation" below), and the notes to individual (non-consolidated) financial statements by the Regulation on Terminology, Forms, and Preparation Methods of Financial Statements (the "individual regulation" below). A company that prepares consolidated financial statements may omit the notes on financial instruments and derivatives from its individual financial statements². The rest of this section cites articles of the consolidated regulation.

The notes on financial instruments (Article 15-5-2 of the consolidated regulation) consist of the following three items. Items of little materiality may be omitted³.

Status of financial instruments: policy, nature of the instruments and their risks, and the risk management system
Fair value: carrying amount and fair value for each line item on the consolidated balance sheet, the difference, and an explanation of fair value
Fair value level: the total amount at each fair value level. For Levels 2 and 3, an explanation of the valuation technique and inputs; for Level 3, a reconciliation from the beginning to the end of the period, among other things

For derivatives, Article 15-7 of the consolidated regulation sets items to be added to these. The items to be stated differ according to whether hedge accounting is applied.

Category	Items stated for each type of underlying	How transactions are broken down
Transactions to which hedge accounting is not applied	Contract amount (or the notional-equivalent amount set in the contract), fair value, valuation gain or loss	Type of transaction (futures, options, forwards, swaps and so on), whether it is a market transaction, whether it is a buy or sell commitment, time to settlement date, and so on
Transactions to which hedge accounting is applied	Contract amount (or notional-equivalent amount), fair value	Method of hedge accounting, type of transaction, hedged item, and so on

The underlyings are currencies, interest rates, stocks, bonds, commodities and so on⁴. Valuation gains and losses are required only for transactions to which hedge accounting is not applied.

Consider a hypothetical example in which Company U discloses transactions to which hedge accounting is not applied. To keep it simple, the example sets the valuation gain or loss equal to the fair value. The unit is billion yen.

Transaction (other than market transactions)	Contract amount, etc.	Of which over 1 year	Fair value	Valuation gain or loss
Forward exchange contract, sold USD	20.0	0	−0.4	−0.4
Forward exchange contract, bought EUR	10.0	0	+0.2	+0.2
Interest rate swap, receive fixed and pay floating	30.0	20.0	+0.5	+0.5
Total	60.0	20.0	+0.3	+0.3

The total fair value is −0.4 + 0.2 + 0.5 = +0.3. Even though the total is +0.3, the sold USD contract is a loss of 0.4 and the receive-fixed interest rate swap is a gain of 0.5, so the direction differs by transaction. The contract amount is a notional-equivalent amount that shows the scale of a transaction; read the size of the gain or loss from the fair value and the valuation gain or loss.

Transactions to which hedge accounting is applied are broken down by hedge accounting method and by hedged item. In Company U's example, an interest rate swap under deferral hedge accounting treatment (pay fixed and receive floating, with long-term borrowings as the hedged item) has a contract amount of 40.0 billion yen and a fair value of −0.6 billion yen. No valuation gain or loss is stated.

Disclosures under IFRS 7

IFRS 7 sets disclosure for financial instruments in general, not only derivatives. This section takes up four parts that bear on derivatives: fair value, hedge accounting, risk and offsetting. What follows is based on AASB 7, the Australian standard that incorporates IFRS 7⁵.

Fair value is disclosed for each class of financial assets and financial liabilities in a form that can be compared with the carrying amount. When fair values are grouped by class, financial assets and financial liabilities are netted only to the extent that they are offset on the balance sheet. If the carrying amount is a reasonable approximation of fair value, the disclosure may be omitted. The disclosure of the fair value hierarchy has moved out of the text of IFRS 7 (the corresponding paragraphs are deleted in AASB 7) and into the disclosures of IFRS 13⁶.

The hedge accounting disclosures apply, for the risks a company hedges, to the hedges for which it has chosen hedge accounting. There are three objectives. The first is to convey the company's risk management strategy and how it is applied. The second is to convey the effect of hedging activities on the amount, timing and uncertainty of future cash flows. The third is to convey the effect of hedge accounting on the statement of financial position, the statement of comprehensive income and the statement of changes in equity⁷.

The effect of hedge accounting is shown in tables by type of risk and by type of hedge. The items in the tables are as follows⁸.

Subject	Items disclosed
Hedging instrument	Carrying amount (assets and liabilities separately), the line item where it is included, the change in fair value used to measure effectiveness, notional amount
Hedged item (fair value hedge)	Carrying amount, accumulated hedge adjustment, the line item where it is included, the change in value used to measure effectiveness
Hedged item (cash flow hedge and others)	The change in value used to measure effectiveness, and balances such as the cash flow hedge reserve
Effect on profit or loss	For a fair value hedge, the ineffective portion and its line item. For a cash flow hedge, the hedging gain or loss recognized in other comprehensive income, the ineffective portion, and the amount reclassified to profit or loss and its line item

In addition, a company must disclose a description of the strategy (how hedging instruments are used, how the hedge ratio is set, and the sources of ineffectiveness), the timing profile of the notional amount of the hedging instruments, and the average strike price or rate. If a company frequently resets hedging relationships, it is exempt from disclosing the timing profile of notional amounts and the average prices⁹.

The risk disclosures state, for each type of risk, how the risk arises and the objectives, policies and processes for managing it (qualitative information). The quantitative information is based on the information provided internally to the company's key management.

Derivative financial liabilities fall within the analysis of payments by maturity (the maturity analysis) when contractual maturities are material. Market risk is disclosed through a sensitivity analysis that shows the effect on profit or loss and on equity. If a company uses an analysis that reflects the interdependence of risk variables such as interest rates and exchange rates (such as value at risk (VaR)) to manage risk, that analysis can replace the sensitivity analysis¹⁰.

The offsetting disclosure applies to financial assets and financial liabilities that are offset on the balance sheet and to those that are subject to an enforceable close-out netting arrangement or similar. It applies even if they are not offset¹¹. The items to disclose are the following five, in separate tables for assets and liabilities¹².

(a) The gross amounts recognized
(b) The amounts offset
(c) The net amounts presented on the balance sheet
(d) Amounts that are not offset but are subject to a close-out netting arrangement (financial instruments that do not meet the offsetting criteria, and financial collateral including cash)
(e) The net amount, which is (c) less (d)

The total of (d) is capped at the amount of (c) for that financial instrument¹³.

Consider a hypothetical example in which Company U discloses an offsetting table. The unit is billion yen.

Item	Derivative assets	Derivative liabilities
(a) Gross amounts recognized	3.0	5.0
(b) Amounts offset	1.0	1.0
(c) Net amounts presented on the balance sheet (a − b)	2.0	4.0
Of (d), financial instruments subject to a close-out netting arrangement and not offset	0.8	0.8
Of (d), financial collateral received or pledged	0.6	2.5
(e) Net amount (c − d)	0.6	0.7

The balance sheet amounts are 3.0 − 1.0 = 2.0 for assets and 5.0 − 1.0 = 4.0 for liabilities. The total of (d) is 0.8 + 0.6 = 1.4 for assets and 0.8 + 2.5 = 3.3 for liabilities, and neither exceeds (c). (e) is 2.0 − 1.4 = 0.6 for assets and 4.0 − 3.3 = 0.7 for liabilities. The purpose of this table is to let readers estimate how much close-out netting arrangements and collateral affect the gross amounts on the balance sheet¹⁴. Larger collateral received makes the net amount on the asset side smaller, and larger collateral pledged makes the net amount on the liability side smaller.

Disclosures under the ASC

Derivative disclosure under US GAAP centers on ASC 815-10-50. What follows rests on the summary in Deloitte's commentary¹⁵.

Disclosure	Content	Paragraphs
Objectives and strategies	Why and how derivatives are used, the accounting, and the effect on financial position and other results	50-1, 50-1A, 50-1B, 50-2
Balance sheet	The fair value of derivatives, split into assets and liabilities and shown gross	50-4A(a), 50-4B
Gains and losses	Gains and losses on derivatives and hedged items, by income statement line item, together with the amount in other comprehensive income. Gains and losses on derivatives not designated as hedges are also shown separately	50-4A(b)(c), 50-4CC, 50-4D
Gains and losses by type of hedge	The items to show depend on the type of hedge	50-4C, 50-4CCC
Credit-risk-related provisions	Whether provisions that operate on objective credit events exist and what they say, the total fair value, and collateral	50-4H

The objectives and strategies disclosure separates derivatives used for risk management (those designated as hedges and economic hedges) from derivatives used for other purposes. The balance sheet disclosure is shown together with the balance sheet line item and separates designated and non-designated derivatives by type of contract. Cash collateral is not included in fair value. The gains and losses disclosure also shows gains and losses on derivatives not designated as hedges separately.

For gains and losses by type of hedge, a fair value hedge shows the gains and losses on the hedging instrument and the hedged item. A cash flow hedge shows the amount recognized in other comprehensive income, the amount reclassified to profit or loss, and the amount of excluded components (the part left out of the assessment of hedge effectiveness). A hedge of a net investment in a foreign operation shows the amount of translation adjustment.

For credit-risk-related provisions, such as those that operate on a downgrade, the disclosure covers derivatives in a net liability position: the total fair value, collateral posted, and additional collateral required if the provisions operate.

These are presented as tables that separate designated and non-designated derivatives by type of contract (interest rate, foreign exchange, equity, commodity, credit and so on) and by income statement line item. When derivative disclosures are spread over several notes, cross-references are added from the derivatives note¹⁶. For derivatives used in trading activities, a company may choose an alternative disclosure that shows trading gains and losses by major item.

The ASC 820 disclosures show, for items measured at fair value, the fair value amount and the level in the hierarchy, whether measured on a recurring or a nonrecurring basis. For Levels 2 and 3 the valuation technique is explained, and for Level 3 quantitative information about significant unobservable inputs (the range and weighted average) and a reconciliation from the beginning to the end of the period are shown. Quantitative disclosures are given in tables. Nonpublic entities are exempt from part of the Level 3 disclosures. For derivative assets and liabilities, the fair value amount and the level are disclosed gross (the reconciliation can also be shown net)¹⁷.

The ASC 825-10-50 disclosures, which put the fair value of financial instruments next to the carrying amount, are limited to public business entities¹⁷.

The offsetting disclosure is in ASC 210-20-50 and covers derivatives, repurchase agreements and securities lending transactions. Its items are the gross amount, the amount offset, the net amount on the balance sheet, the amount subject to a close-out netting arrangement and not offset (including financial collateral), and the net amount after that, the same sequence as the five items in IFRS 7¹⁸.

The three standards and company conditions

The range that the three standards require differs as follows.

Item	Japanese GAAP	IFRS 7	ASC 815, 820, 210-20
Quantity of derivatives	Contract amount by type of underlying (Article 15-7 of the consolidated regulation)	Notional amount and timing profile of hedging instruments (for non-hedging derivatives, only paragraph 24G(a), which covers credit derivatives, in the AASB 7 text and Appendix B)	Description of objectives and strategies, including the volume of activity (50-1A)
Fair value	Fair value by type of underlying, plus valuation gain or loss for transactions to which hedge accounting is not applied	Compared with carrying amount for each class of financial instrument	Gross amounts by balance sheet line item (50-4A)
Hedge gains and losses	The items of Article 15-7 contain no table of hedge gains and losses	Tables by type of hedge and type of risk	Tables of gains and losses by type of hedge (50-4C)
Hierarchy	Total amount at each level (Article 8-6-2 of the individual regulation, Article 15-5-2 of the consolidated regulation)	Paragraphs 27 to 27B deleted in AASB 7; hierarchy disclosure has moved to IFRS 13	ASC 820-10-50
Offsetting	No item in Articles 15-5-2 and 15-7 of the consolidated regulation	Five-item table	Five-item table
Risk	Policy, risks and management system. For companies that meet the conditions, a quantitative analysis of market risk	Qualitative and quantitative by type of risk	Objectives and strategies. A description of overall risk is encouraged (50-5)

The absence of an offsetting disclosure under Japanese GAAP means only that Articles 15-5-2 and 15-7 of the consolidated regulation have no such item; it cannot be said that Japanese GAAP has no offsetting disclosure.

For non-hedging derivatives, paragraph 24G(a) is the only paragraph of the AASB 7 text and Appendix B that requires notional amounts¹⁹.

Now apply the interest rate swap of Company U from the Japanese GAAP section (pay fixed and receive floating, with long-term borrowings as the hedged item) to the three standards. This is an assumption made to compare the three standards; one company does not use all three at the same time. In every standard, assume that hedge accounting is applied (the swap is designated). The IFRS 7 and ASC rows assume that the swap is designated as a cash flow hedge.

Standard	Tables it goes into	Items stated
Japanese GAAP	The table for transactions to which hedge accounting is applied (Article 15-7 of the consolidated regulation)	As in the example in the Japanese GAAP section: the contract amount and fair value, by hedge accounting method and hedged item, with no valuation gain or loss
IFRS 7	The table of hedging instruments and the table of effects on profit or loss	Carrying amount, the name of the line item that includes the hedging instrument, notional amount and so on; the hedging gain or loss recognized in other comprehensive income, the ineffective portion, and the amount reclassified to profit or loss
ASC 815	The balance sheet fair value table (split by hedge designation) and the gains and losses table for each type of hedge	Fair value on a gross basis, together with the balance sheet line item; the amount recognized in other comprehensive income, the amount reclassified to profit or loss and so on

Among the tables that Article 15-7 of the consolidated regulation requires, the same swap goes into the table that states the contract amount and fair value. Under IFRS 7 and the ASC, the swap also goes into the table of hedge gains and losses, in addition to the table of hedging instruments and similar tables. The IFRS 7 and ASC rows apply the items described in each section above; they do not show the actual form of a note.

On the difference between financial institutions and non-financial companies, Japanese GAAP separates treatment by conditions, not by type of company. The companies required to give a quantitative analysis of market risk are those that meet all three of the following conditions. Financial assets and financial liabilities together make up the greater part of total assets and total liabilities. They are material in light of the business purpose. The rate of change in their value is significant. If the company uses the analysis for risk management, it states that information. If not, it states the increase or decrease in fair value on an assumption of changes in market risk factors within a reasonable range²⁰. The text of the article does not use the term "financial institution"; it applies to any company that meets the conditions.

IFRS 7 does not separate companies by type; it requires either a sensitivity analysis or an analysis used in management (such as value at risk)¹⁰. The ASC has items whose treatment depends on whether the company is a public business entity and whether it has trading activities. These are the alternative disclosure for companies with trading activities and the ASC 825 disclosure limited to public business entities.

Where the disclosure data is collected

The disclosure tables are built from data on trade details, fair values, hedge designations, and offsetting and collateral. The items the standards require show that the following data are needed.

Contract amount (notional-equivalent amount), type of underlying, time to settlement date, type of transaction, whether it is a market transaction, and whether it is a buy or a sell (Japanese GAAP; Article 15-7 of the consolidated regulation)
Fair value and its level (fair value under Japanese GAAP, IFRS 7 and ASC 820; level under Japanese GAAP and ASC 820)
The hedge accounting method and the hedged item (Japanese GAAP), and the carrying amount and notional amount of the hedging instrument (IFRS 7). A company presents the hedge accounting disclosures at the same level of aggregation as the related disclosures under IFRS 7 and IFRS 13²¹
The amount offset, the amount subject to a close-out netting arrangement, and the amount of financial collateral (IFRS 7, ASC 210-20)

Under IFRS 7 and Japanese GAAP, quantitative risk disclosure is based on the analysis the company uses in risk management. IFRS 7 requires it to be based on the information provided internally to key management, and Japanese GAAP requires that, if quantitative analysis is used in risk management, the information from that analysis be stated¹⁰²⁰.

Japanese GAAP tables break transactions down by items such as contract amount and type of underlying, and by hedge accounting method and hedged item. Because the breakdown items are fixed by regulation, the data behind a table must show those items for each trade⁴.

Beyond the data itself, the accounting treatment that feeds the disclosure figures is covered in Accounting Operations.

What this article does not cover

The notes to the financial statements under the Companies Act, and the disclosures that sector laws such as the Ordinance for Enforcement of the Banking Act require, are not covered on this page.

Notes

AASB 7 paragraph 20 (items such as gains and losses are disclosed in the statement of comprehensive income or in the notes), paragraph 21 (accounting policies) and paragraph 31 (disclosure of risks arising from financial instruments). ↩
Article 8-6-2, paragraph 10 (financial instruments) and Article 8-8, paragraph 4 (derivative transactions) of the individual regulation. Both provide that no statement is required when consolidated financial statements are prepared. Retrieved October 5, 2026 (e-Gov Laws and Regulations Search, in Japanese). The Japanese Law Translation database carries an official English translation of the consolidated regulation, "Regulation on Terminology, Forms and Preparation Methods of Consolidated Financial Statements" (Ministry of Finance Order No. 28 of 1976; https://www.japaneselawtranslation.go.jp/en/laws/view/4134, retrieved October 5, 2026), which reflects amendments up to Cabinet Office Order No. 46 of 2020, so it may not match the current text read here. The English translation of the individual regulation is at https://www.japaneselawtranslation.go.jp/en/laws/view/4133 (its article headings are not covered on this page). This page's English article titles and article headings follow that translation where it exists; for the individual regulation ("Regulation on Terminology, Forms, and Preparation Methods of Financial Statements," Ministry of Finance Order No. 59 of 1963) the article titles are our translation. ↩
Article 15-5-2, paragraph 1 (items 1 to 3) of the consolidated regulation ("Notes on Financial Instruments" in the official English translation). The same structure is in Article 8-6-2, paragraph 1 of the individual regulation. The explanation of valuation techniques for Levels 2 and 3 is item 3(c), and the Level 3 reconciliation and so on is item 3(d). Paragraph and item numbers follow the Japanese text; our translation. ↩
Article 15-7, paragraphs 1 to 3 of the consolidated regulation ("Notes on Derivative Transactions" in the official English translation). The breakdown is in paragraph 2 (transactions to which hedge accounting is not applied) and paragraph 3 (transactions to which it is applied), and the definition of underlyings is in paragraph 1, item 1. Article 8-8 of the individual regulation has the same structure. ↩ ↩²
AASB 7 (Australian Accounting Standards Board; compiled edition registered on January 16, 2024, which reflects amendments through June 22, 2023). This is an Australian standard that incorporates IFRS 7 (it has paragraphs of its own for Australia). ↩
AASB 7 paragraphs 25, 26, 29, 27 to 27B, and 44P. That the hierarchy disclosure moved to IFRS 13 rests on page 6 of the IASB's "IFRS 13 Fair Value Measurement Project Summary and Feedback Statement" (May 2011). ↩
AASB 7 paragraph 21A. Paragraph 21B covers presenting the hedge accounting disclosures in a single note or a separate section. ↩
AASB 7 paragraph 24A (hedging instruments), paragraph 24B (hedged items) and paragraph 24C (effect on profit or loss). Each is shown in a table by type of risk. ↩
AASB 7 paragraphs 22A to 22C (description of strategy), paragraphs 23A to 23F (timing profile of hedging instruments; the exemption is in 23C) and paragraph 24E (reconciliation of components of equity). ↩
AASB 7 paragraph 33 (qualitative), paragraph 34 (quantitative; (a) is based on information provided internally to key management), paragraph 39 (liquidity risk; the maturity analysis of derivative liabilities is in (b)), and paragraphs 40 and 41 (sensitivity analysis, and the alternative such as value at risk). ↩ ↩² ↩³
AASB 7 paragraph 13A. It includes items offset under paragraph 42 of AASB 132 and items subject to an enforceable master netting arrangement or similar. Paragraph 13F covers cross-references when the disclosures are split over several notes. ↩
AASB 7 paragraph 13C(a) to (e). The table separates assets and liabilities. ↩
AASB 7 paragraph 13D. ↩
AASB 7 paragraph 13B (evaluating the effect of netting arrangements on financial position) and paragraph 13E (description of the rights of set-off). ↩
ASC 815-10-50 as summarized in section 6.6 of Deloitte's Roadmap: Hedge Accounting (Deloitte). ↩
The same section 6.6. The format of the tables is in 50-4D and 50-4E, cross-references in 50-4I and the trading alternative in 50-4F. ↩
Section 11.2 of Deloitte's Roadmap: Fair Value Measurements and Disclosures (Including the Fair Value Option). ASC 820-10-50-2, 50-3, 50-8, 50-2F, and ASC 825-10-50-10 and 50-11. ↩ ↩²
Section A-1 of Appendix A of the same Roadmap. The five items of ASC 210-20-50-3, and the covered derivatives, repurchase agreements and securities lending transactions. ↩
AASB 7 paragraph 24G(a). Where the reason for designating a financial instrument as measured at fair value through profit or loss is the use of a credit derivative to manage credit risk, it requires a reconciliation of the notional amount and the fair value from the beginning to the end of the period. It is the only paragraph in the text and Appendix B of AASB 7 that requires the notional amount of non-hedging derivatives. ↩
Article 15-5-2, paragraphs 6 and 7 of the consolidated regulation. Article 8-6-2, paragraphs 6 and 7 of the individual regulation have the same provisions. Paragraph numbers follow the Japanese text; our translation. ↩ ↩²
AASB 7 paragraph 21D. The level of aggregation of the hedge accounting disclosures is the same as for the related disclosures under IFRS 7 and IFRS 13. ↩

This page gives a general explanation of laws and standards. It is not legal, tax or accounting advice for any particular situation. Please consult a professional for decisions that apply to you. (Disclaimer)