Financial Liability. Definition: Under international financial reporting standards, a financial liability can be either of these two items: 1  A contractual obligation to deliver cash or similar to another entity or a potentially unfavorable exchange of financial assets or liabilities with another entity.efinition: Under international financial reporting standards, a financial liability can be either of these two items: 1  A contractual obligation to deliver cash or similar to another entity or a potentially unfavorable exchange of financial assets or liabilities with another entity.