IAS 32 FINANCIAL INSTRUMENTS: PRESENTATION
1 THE TERM “FINANCIAL INSTRUMENT”
The term “financial instrument” used in IAS 32 as well as in other standards is defined in IAS 32. According to this definition, a financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or an equity instrument of another entity (IAS 32.11). The terms used in this definition are defined as follows:
- The term “entity” includes individuals, partnerships, incorporated bodies, government agencies, and trusts (IAS 32.14).
- An equity instrument (e.g. a share) is a contract that demonstrates a residual interest in the assets of an entity after deducting all of its liabilities (IAS 32.11).
- Financial assets include (among others) (IAS 32.11):
- Equity instruments of other entities held by the entity.
- A contractual right to receive cash or another financial asset from another entity (i.e. certain receivables).
- A contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity (this definition comprises financial derivatives with a positive fair value).
- Financial liabilities include (among others) (IAS 32.11):
- A contractual obligation to deliver cash or another financial asset to another entity.
- A contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity (this ...