Any contract or contractual agreement that gives rise to a financial asset (cash, an equity instrument issued by another entity, or contractual rights) belonging to one entity and a financial liability or equity instrument belonging to another entity. The equity instrument is an investment in another entity, and hence an entity’s own equity is not characterized as equity instrument. Likewise, interests in an entity’s joint venture or subsidiary is not treated as equity instrument.

A financial instrument is a tool connecting the assets or rights of a given entity on one side, and liabilities or equity instruments of another entity on the other side.