III.

PAS 32 FINANCIAL INSTRUMENTS: PRESENTATION

A financial instrument is a contract between two parties that has monetary worth. They can be created, traded,
resolved, or amended depending on the needs of the people concerned. Simply put, everything that has value
and can be traded on the open market is a financial instrument. Checks, stocks, bonds, futures contracts, and
options are examples of financial instruments. The two basic categories into which financial products may be
separated are derivative instruments and cash instruments. Derivative instruments are those that may draw their
characteristics and value from their underlying objects, such as interest rates, indices, or assets. The value of
such instruments may be estimated using the performance of the underlying element. They might be linked to
other asset classes as well, including bonds, equities, and shares. Those that can be quickly transferred and
valued in the market, on the other hand, are referred to as cash instruments. The most common forms of
monetary instruments are deposits and loans, which require consent from both the lender and the borrower.
According to the asset type they fall under; financial instruments can also be separated into equity- and debt-
based groups. Equity-based financial instruments include securities such as stocks and shares. The same holds
true for exchange-traded derivatives like stock options and equity futures. Alternatively, short-term securities
with a maturity of one year or less, such as commercial paper (CP) and treasury bills, make up debt-based
financial instruments (T-bills). This Additionally, this group consists of certain money instruments such
certificates of deposits (CDs). In a similar spirit, exchange-traded derivatives are included in this category,
including futures contracts for short-term interest rates. This category includes securities with a maturity date of
more than a year, such as bonds. Exchanges trade derivatives such as bond futures and other securities.
Establishing guidelines for reporting financial instruments as liabilities or equity and for balancing financial
assets and liabilities is the declared goal of IAS 32. [IAS 32.1] .1] This is addressed in a variety of ways by
IAS32: specifying the accounting for treasury shares (A company's own repurchased shares), explaining
whether a financial instrument issued by a corporation should be classified as a liability or as equity, and
establishing rigorous guidelines for when assets and liabilities can be offset on the balance sheet IAS 32 is a
companion standard to IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and
Measurement. First, recognition of financial assets and liabilities, assessment after initial recognition,
impairment, derecognition, and hedge accounting are all topics covered by IAS 39 and IFRS 9. IAS 39 evolved
through time. As the IASB finished the different stages of its financial instruments project, it was superseded by
IFRS 9. A financial instrument is a contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another. For this purpose, the term 'entity's own equity instruments' does not
include instruments that are themselves contracts for the future receipt or delivery of such instruments. The
fundamental principle of IAS 32 is that a financial instrument should be classified as either a financial liability
or an equity instrument according to the substance of the contract, not its legal form. Certain puttable
instruments meeting specific criteria and obligations arising from liquidation are exceptions to this principle.
When a derivative financial instrument gives one party a choice over how it is settled, it is a financial asset or a
financial liability unless all of the settlement alternatives would result in it being an equity instrumental
amended IAS 32 and IAS 1 Presentation of Financial Statements with respect to puttable instruments and
obligations arising only on liquidation. In October 2009, the IASB issued an amendment to IAS 32 on the
classification of rights issues. For rights issues offered for a fixed amount of foreign currency, current practice
appears to require such issues to be accounted for as derivative liabilities. The amendment states that such rights
should be classified as equity regardless of the currency in which the exercise price is denominated.