FINANCIAL INSTRUMENTS

Financial Instruments

Financial Instruments

Introduction

Accounts can be stated as communicators, they tend to communicate the financial information of a company to the users, such as managers and shareholders. Accountants communicate with the users through financial statements; they indicate the performance of economic resources in monetary terms that are under the management control. However it is important for accountants to identify the information that will be relevant for the users. It is not only important to select the relevant information and data to include in the financial statements of the company however it is also essential to have the correct representation of these accounting items (Elliot, 2012, Pp. 312-319).

Financial reporting and analysis is not only crucial for the investors or shareholders but it is also significant for companies to analyze their financial data and conduct complete and thorough assessment of financial information to ensure that the company is able evaluate it efficiently that will assess the business to deal with monitoring, budgeting, forecasting and bringing improvements in their financial performance within organization. It is crucial for companies to understand their financial health, identify relevant information, analyze it accurately and then make required adjustments with complete assessment. (Besley &Brigham, 2008, 24-27)

IAS 32 and 39 assist firms in measuring and recognizing the financial instruments and they are disclosed according to the standards of IFRS 7 for financial reporting purpose. Financial reports are the documents and records that assist the company to track and review how much money has the firm generated, and make this information available to the lenders or other stakeholders of the business. Investors and lenders of the company have the right to know about the expenditures of the company and also about its earnings, these reports should include sufficient information that is essential for the investors and the lenders (accounting-financial-tax.com). They need to know if the company is a profitable one or incurring losses and by how much amount, whether the assets of the companies are enough to pay off the liabilities or not, how is the capital of the company being financed and are these finances being utilized by the company effectively (www.efrag.org). To report this information standards and rules have been defined which is important for the company to follow to ensure the accuracy of data.

Discussion

Evaluating IFRS-7, IAS 32 and 39

Financial instruments can be addressed using three standards that include IAS 32 which tends to differentiate between debt and equity instruments, IAS 32 that deals with recognition and measurement of financial instruments and IFRS-7 which determines the rules for disclosure of financial instruments in the financial statements. International Accounting Standards Board has defined standards for companies to report its financial information and present them with accuracy to the users of the financial statements. Financial instruments have resulted from the dynamic international financial markets. However financial instruments contribute to minimize the risk associated with the company.

Financial instruments may include assets and liabilities that can mostly be exchanged for ...