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Note: All the materials in this blog post have been made available to the public for free download by the respective sources. They are compiled here for ease of access to you.
IAS 32 Financial instruments: Presentation is an accounting standard that focuses on how financial instruments are presented on a company's balance sheet. It provides guidelines on classifying financial instruments as either:
- Financial assets (the right to receive cash, e.g. trade receivables, loans made to customers of a bank)
- Financial liabilities (the obligation to pay cash, e.g. trade payables, deposits received from customers by a bank) or
- Equity instruments (shares of the company itself)
Essentially, IAS 32 helps companies to determine how to present these instruments on their financial statements, ensuring that readers of the financial statements understand the nature of a company's obligations and ownership structure. IAS 32 also provides rules about when financial assets and financial liabilities can be offset (set off against each other) on the balance sheet.
This blog post compiles for you guidance made available by Big Audit firms to help you with the learning and understanding of IAS 32.
Fun fact
- IAS 32, IFRS 9, and IFRS 7 are all interrelated standards that deal with different aspects of accounting for financial instruments.
- IAS 32 sets the rules on how to categorize financial instruments in financial statements (that is, whether an instrument should be classified as liability or equity), while IFRS 9 covers how to account for those instruments once they’re categorized.
- IAS 32 primarily deals with how financial instruments should be classified and presented in the financial statements, not their actual measurement or recognition.
- IFRS 9, on the other hand, focuses on the recognition, measurement, and impairment of financial assets and liabilities, including how to measure the value of these instruments (e.g., at fair value or amortized cost).
- IFRS 7 is all about the disclosure of information related to financial instruments to ensure that users of financial statements can understand the financial risks and potential impacts of financial instruments on the company. It requires companies to disclose information about the fair value of financial instruments and also the risks (such as credit risk, liquidity risk, and market risk) associated with a company's financial instruments.
The below resources (PDF and eLearns) provide comprehensive coverage of IAS 32, including its key requirements and practical guidance. Whether you are new to IAS 32 or need a refresher, these resources will be helpful.
IAS 32 Financial Instruments: Presentation
Source: Grant Thornton
Grant Thornton Classification of financial instruments into Equity or Liability - IAS 32 Pdf
Source: BDO
BDO Accounting for convertible notes - IAS 32 Pdf
eLearn
Source: Deloitte
Deloitte Financial Instruments Presentation - IAS 32 eLearn
IAS 32 Standard
Source: IASB
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