Know Your Rights!!

Because investors rely on accounting information to make their investment decisions, it is important for accounting information to present items according to their substance, and not merely their legal form. Some financial instruments have the legal form of equity but are in substance, liabilities. Under IFRS the issuer should classify the instrument, or its component parts, as a financial liability or equity in accordance with the ‘substance’ of contractual arrangement on initial recognition, and the definitions of financial liability and an equity instrument . The classification is made at the date of issue and is not revised later. The critical feature in differentiating a financial liability from an equity instrument is the existence of a contractual obligation on one party to the financial instrument (the issuer) either to deliver cash or another financial asset to the other party (the holder) or to exchange another financial instrument with the holder under potentially unf...