A Transformation Strategy for Financial Instruments according to the Requirements of International Standards

Background/Objectives: This research aims at improving the methodological framework, as well as calculation and procedural mechanism of measuring and recognizing derivative financial instruments by firms. Methods/Statistical analysis: The researchers used the following methods: abstract method; induction method; deduction method. Findings: Relevant challenges of transforming financial interests in accordance with the requirements of international standards, and transactions with derivative financial instruments in particular, have been discussed in this article. As a result of this research, the authors have presented key problems that arise in transformation of statements; original methodology of transforming financial instruments in accordance with the requirements of international financial reporting standards, and have developed detailed calculation tools to be applied in basic forms of financial statements of any firm, i.e. a statement of financial position and statement of total income. The authors have developed an overall fair and amortised cost measurement methodology for financial statements, and then provided a special measurement procedure for derivative financial instruments that includes measurement formulas for forward, future, option, swap contracts and warrants. Applications/Improvements: This methodology may be applied by organizations that transform their financial statements in accordance with the requirements of international financial reporting standards, including credit institutions, insurance companies, investment funds and town planning organizations that undergo listing procedure.