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As we announced towards the end of 2019, after discussing a couple of topics on fixed assets and provisions, we will now start a series of articles on financial instruments. Adopting a practical point of view, we would like to explain how to identify financial instruments, and then measure them and present them properly. To this end, we will need the provisions of the Accounting Act (hereinafter: AA) or the Regulation on Detailed Rules of Recognition, Valuation Methods, Scope of Disclosure and Presentation of Financial Instruments (Journal of Laws, item 277) (hereinafter: RMFIF), but also, or rather most of all, International Financial Reporting Standards (IFRS), primarily including IFRS 9, but also IFRS 7, IAS 32 and IAS 39.

The consequences of applying the prudence principle and the matching principle involve recognising provisions and disclosing contingent liabilities. In practice, these areas stir a lot of controversy because of the danger of being subjective, so typical for any decision-making under uncertainty.

In line with IAS 37, provisions are liabilities and must have all the characteristics of liabilities as being a balance sheet item.

An audit of public interest entities (PIE) is regarded as a high-risk audit not without reason. The higher requirements – which must be met by the audited companies, as well as their auditors – mainly arise from the fact that information in financial statements and in reports of an expert auditor may directly translate into share prices and, for smaller investors, is often the only source of data about a listed company.

Each economic entity has at least one component of a tangible fixed asset – a mobile phone, a car, or real estate. In this case, size does not matter. Since it is such a common item on the balance sheet, tangible fixed assets require a separate standard, which accurately regulates the manner of their recording in the financial statements so that users of the annual report can easily become aware of the investments of the individual in tangible fixed assets. One such standard is International Accounting Standard 16 (hereinafter: IAS 16), according to which most listed companies that are public interest entities (PIE) must report.