In today’s world of Globalization, we are witnessing free trade agreements between different countries, international exchanges are multiplying, and commercial barriers are falling. Hence competition is measured on global scale. In this wave of globalization, financial instruments have been growing at an incredible pace. We are currently witnessing a rapid expansion phenomenon of the use of the financial instruments in the international financial market. These fluctuate from the traditional instruments like interests or bonds, to the various forms of derivative instruments, such as futures contracts, forward contracts, options, interest rate swap etc. So the need for converging standards for addressing complexity of financial instrument arises. Because of the increase in the use of financial instruments in the global market there is a need to recognize and disclose them in the financial statements that it can provide the reliable and relevant information so that investors and creditors can rely on those instruments.
So I am undertaking research which will focus on disclosure and recognization of financial instruments keeping in mind the CICA Handbook Section 1000. I will start my study with the definition and classification of financial instruments. And then I will discuss the development and further amendments, the need to focus on the development of the financial instrument emerged due to the recent revolution of convergence.
Definition of Financial Instruments
With reference to definition given in the book written by Scott, William R. (2007) “Financial Accounting theory” 5th ed., pp 2355, financial instrument are defined as :
“A financial instrument” is a contract that creates a financial asset of one firm and a financial liability or equity instrument of another firm”
Financial assets and liabilities are defined quite broadly. Thus financial assets are:
• An equity instrument of another firm
• A contractual