Financial instrument
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. Accounting classification, measurement and disclosure depend on the instrument and applicable standards. The auditor considers terms, valuation and associated risks.
Worked example
A company issues a loan note: the lender has a financial asset and the issuer has a financial liability, subject to the contractual terms.
Common mistake
A contractual instrument must be classified using its substance and applicable definitions, not merely the name chosen by the parties.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AAA (INT) | Supporting | September 2026–June 2027 |
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |