IAS 32 - Financial Instruments: Presentation provides guidelines on how to classify financial instruments either as an equity instrument or as a financial liability, which impacts how these items are represented in the financial statements. The aim is to ensure entities are consistent in their reporting and that the classification reflects the economic substance of the instrument rather than its legal form. For instance, a financial instrument that obligates the issuer to deliver cash or another financial asset to the holder is classified as a liability.

The standard also addresses the conditions under which financial assets and financial liabilities can be offset and presented net in the financial statements. For example, in certain cases where an entity has a legally enforceable right to set off assets against liabilities, the standards allow for a net presentation. For preparers and reviewers of financial statements, the classification as dictated by IAS 32 has implications for the analysis of the entity's financial position and its solvency ratio, which are of interest to investors and stakeholders. Related terms include liabilities, equity, financial instruments, and balance sheet reconciliations.