Bonds and financial instruments – identification and accounting treatment (part I)

Author:Univ. prof., PhD Elena DOBRE



Keywords:financial instruments, bonds, financial debts, financial assets, equity instruments

The relationship between bonds and financial instruments is the one from part to the whole. This way, any bond is a financial instrument, given the fact that it corresponds to the accounting content of a financial instrument (generating financial assets, on the one hand, and financial debts or equity instruments, on the other hand), while a financial instrument is not compulsorily a bond if it is not marketable on the monetary and capital financial markets. The criteria for differentiating them are of legal, accounting and financial nature. The definition of the financial instruments is common up to a point with that of the bonds, meaning that both are agreements generating in a correlative manner rights (financial assets) and obligations (financial liabilities or equity instruments) in the issuing entity and in the investing or receiving entity accounting. The notions are differentiating only by their marketability on an organized market. \r\n\r\nThe bonds (primary, derivative and synthetic) are marketed on the monetary market (foreign exchange short term deposits) and on the capital market. Although they are based on an agreement generating financial assets and financial liabilities or equity instruments not in all the cases can be transmitted by transitioning them. These are the financial leasing, forward contracts; swap contracts, other financial instruments, like shares, participations in the investments funds etc. The intent to differentiate the financial instruments and bonds starts from the financial and accounting description of both categories. \r\nThis method is based on how the financial markets perceive the financial instruments given their often marketability aspects, this leading to the financial markets volatility and liquidity. There are several types of bonds but, depending on their content, they are primary bonds (shares, rights generated by shares, obligations, rights generated by obligations, state bonds), derivatives (futures contracts, conditioned contracts – options) and synthetic bonds (futures contracts based on stock exchanges indexes and options on stock exchange indexes).\r\n