The definition of cash equivalents makes reference to them being both highly liquid and subject to an insignificant risk of changes in value. IAS 7 does not include any specific requirement to revisit either of these criteria after the initial recognition of a cash equivalent.
In general, amounts that initially meet the definition of cash equivalents would not be expected to be subject to significant risk of adverse changes in liquidity and changes in value. However, it is possible that such changes could take place. For example, a short-term maturity corporate (or government) bond that would otherwise meet the definition of a cash equivalent might be subject to a sudden adverse change in the issuer’s credit status.
This represents a less obvious feature of cash equivalents which is easily missed. At each reporting date, entities need to consider whether there are any indicators that items previously classified as cash equivalents now fail to meet the classification criteria. During the credit crises and in subsequent years, a number of governments and financial institutions have seen their credit status decline dramatically within a very short period.