IASB published exposure draft supplier finance arrangments
The International Accounting Standard Board (IASB) published an Exposure Draft “Supplier Finance Arrangement” on November 26, 2021. The Exposure draft proposed changes in IAS 7 Statement of Cash flows and IFRS 7 Financial Instruments – Disclosure.
The following additions in IAS- 7 Statement of Cash flows are proposed
As per the proposed amendments, Supplier Financing Arrangements are defined as when any finance provider agree to pay the amounts an entity owes to its supplier. Such arrangements are usually called supply chain finance, payable finance or reverse factoring arrangements. These arrangements normally provide an extended payment terms to the entity or its early receiving to its supplier.
The proposed amendments further required to disclosed for each supplier finance arrangement,
- Term and condition for each arrangement.
- Carrying amount of financial liability recognized in entity’s book, under each supplier finance arrangements and the line item in which these are presented in Statement of cash flows under the heading of financing activities.
- Carrying amount of financial liability recognized in entity’s book, for which supplier have already received the payment, from provider of finance.
- The range of Payment dates (credit term e.g. 30,60 or 90 days etc.)
- The range of payment due dates for trade payables, which are not part of supplier financing arrangements.
Further, any additional information regarding Supplier financing arrangements shall be disclosed which will enable users of Financial Statements to access the impact of such arrangement on the reporting entity’s liabilities and its cash flows.
Similarly, in IFRS 7 Finance Instruments, it was proposed to disclose the extended payment terms for entity or early receipt terms for supplier under supplier financing arrangements.
The above amendments are proposed to meet investor’s demand for more disclosure to access the impact supplier finance arrangement over the financial performance of entity.
Andreas Barckow, Chair of the IASB, said:
Investors require more detailed disclosures about companies’ supply chain finance arrangements as these funding practices are becoming increasingly common. The proposed requirements are designed to give investors the information they need to assess the effects of such finance arrangements on a company’s liabilities and cash flows.
The Exposure Draft Supplier Finance Arrangements is open for comment until 28 March 2022.
Access the latest Investor Perspectives article by IASB Member Zach Gast, who explains the IASB’s proposals.
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