IAS 32 is the International Accounting Standard that sets out rules for the classification of financial instruments.

The standard classifies financial instruments into three categories:

1. Financial assets or liabilities at fair value through profit or loss

• This category includes financial instruments that are held for trading purposes, or financial instruments that are designated as such by the entity upon initial recognition. Changes in fair value of these instruments are recognized in profit or loss.

1. Held-to-maturity investments

• This category includes financial instruments that are held with the intention of being held to maturity. They are measured at amortized cost, and changes in fair value are not recognized in profit or loss.

1. Loans and receivables

• This category includes financial instruments that are held with the intention of collecting the contractual cash flows. They are measured at amortized cost, and changes in fair value are not recognized in profit or loss.

The classification of financial instruments is determined based on the entity's business model for managing its financial instruments and the characteristics of the financial instruments themselves. Additionally, IAS 32 provides guidance on the presentation of financial instruments in the financial statements, including offsetting of financial assets and liabilities, and disclosures related to financial instruments.