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financial assets include all of the following:

■ Cash

■ Evidence of an ownership interest (an equity instrument) in another

entity

■ A contract that conveys to one entity a right to either (1) receive cash or

another financial instrument from a second entity (e.g., trade accounts

and notes receivable) or (2) exchange other financial assets or financial

liabilities on potentially favorable terms with the second entity

The IFRS definition of financial assets includes a fourth category—

certain contracts that will or may be settled in the entity’s own equity

instruments.

Nonfinancial assets are simply all assets that are not financial assets.

Common nonfinancial assets that will be the subject of possible fair value

accounting fraud issues in this section of the book include intangible assets,

as well as property and equipment.

Some nonfinancial assets are classified as current assets, such as inventory.

Current assets are those that are expected to be realized (i.e., converted

to cash) with one year or one reporting cycle of the entity or are held primarily

for the purpose of being traded (e.g., certain securities). Other assets,

such as land and intangible assets, are classified as noncurrent assets.

A financial liability is a contract that imposes on one entity an obligation

to either (1) deliver cash or another financial instrument to a second entity

(e.g., accounts and notes payable) or (2) exchange other financial assets or

financial liabilities on potentially unfavorable terms with the second entity.

Similar to its definition of financial assets, the IFRS definition also includes
certain contracts that will or may be settled in the entity’s own equity instruments.

Examples of financial liabilities include accounts payable, debt, and

accrued liabilities.

Nonfinancial liabilities are satisfied using methods other than delivering

or exchanging financial assets or financial liabilities. The most common

nonfinancial liability is deferred revenue—income received in advance for

which an entity has an obligation to provide services.

The term financial instrument is used (under both U.S. GAAP and IFRS)

with respect to any contract that results in one entity gaining a financial asset

while another entity gains either a financial liability or an equity instrument.

The terms financial instrument and financial asset are used throughout this

section of the book.

In addition, certain assets are described as long-lived assets. This

description merely means that the asset is expected to last more than one

year or operating cycle. Some long-lived assets are subject to depreciation