As markets move, as interests rates go up or down or currencies fluctuate, the fair values of financial instruments can change significantly, creating volatility in the earnings and in the balance sheets of companies. Knowing the mechanism of financial instruments seems now to be an essential requirement. The paper presents a broad overview of the requirements related to financial instruments, according to revised standards, dealing with aspects as debt/equity classification, initial and subsequent recognition and measurement, fair values, impairment and hedge accounting. The paper provides certain exemples of financial instruments and their appropriate classification as equity or liability and also presentes a checklist for identifying the embedded derivatives