The accounting standards of US GAAP and IFRS require (1) the classification of financial instruments; (2) their recognition and derecognition in financial statements; (3) the recognition of derivatives on the balance sheet; and (4) their disclosure in the notes to the balance sheet.

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. They include primary financial instruments, as cash, receivables, debt and shares in other entities, as well as derivative financial instruments, such as options, forwards, futures, interest-rate swaps and currency swaps.  A financial instrument is classified and measured on initial recognition in accordance with the substance of the contractual arrangement and the respective definition of the instrument.

Financial Instrument Classification under US GAAP and IFRS
US GAAP Categories IFRS Categories
Held-for-sale (HFS) loans Debt instruments at amortized cost
Held-for-investment (HTI) loans Debt instruments at fair value through other comprehensive income (FVTOCI)
Held-to-maturity (HTM) securities Equity instruments at fair value through other comprehensive income (FVTOCI)
Available-for-sale (AFS) securities Debt, equity and derivative instruments at fair value through profit or loss (FVTPL)
Trading securities

Three methods are used to recognize and subsequently measure financial instruments under both US GAAP and IFRS: amortized cost, fair value through other comprehensive income, and fair value through net income.  The method used depends on its classification, the nature of the instrument and the purpose it is intended to serve at origination or purchase date.

Recognition and Measurement under US GAAP and IFRS
Recognition Value Subsequent Measurement
Transaction Price Amortized cost
Transaction Price Fair value through other comprehensive income
Fair Value Fair value through net income/profit or loss

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