Accounting for financial instruments is probably one of the most demanding areas in FRS 102 and while there are some welcome simplifications for micro entities, there is no escape for small companies. The challenge lies not only in recognising and measuring financial instruments correctly, but also in identifying and classifying them in the first place, since many arrangements are more complex than they may seem at first.

In this article we consider how to spot the types of financial instrument that commonly arise in smaller companies, answer some frequently asked questions and review the accounting requirements.