Accounting Alert January 2022

More disclosures proposed for supplier finance arrangements

In order to complement the requirements in IFRS Standards regarding reverse factoring and other similar arrangements (as outlined in the IFRS Interpretations Committee agenda decision – see our May 2021 Accounting Alert), the International Accounting Standards Board (IASB) is proposing to add additional disclosure requirements to IAS 7 Statement of Cash ﬂows and IFRS 7 Financial Instruments: Disclosures. ED/2021/10 Supplier Finance Arrangements – Proposed amendments to IAS 7 and IFRS 7 aims to provide users of ﬁnancial statements with information that enables them to assess the eﬀects of supplier ﬁnance arrangements on the entity’s liabilities and cash ﬂows, as well as on liquidity and risk management.

Who will be affected?

Any entities that, as a buyer, enter into one or more supplier finance arrangements will be affected by these proposals.

What is a ‘supplier finance arrangement’?

As ‘supplier finance arrangements’ may evolve over time, the term has not been defined in either IAS 7 or IFRS 7 because there is a risk of it becoming outdated as new practices and arrangements develop. Instead, the proposals in ED/2021/10 describe the characteristics of a ‘supplier finance arrangement’ in proposed paragraph 44G to IAS 7 as follows:

One or more finance providers offer to pay amounts an entity owes its suppliers
The entity agrees to pay the finance providers at the same date, or a later date, than suppliers are usually paid
Entity gets extended payment terms, or supplier gets early repayment terms, compared to the invoice payment due date
Often referred to as ‘supply chain finance’, ‘payables finance’ or ‘reverse factoring arrangements’.

Under the proposals, supplier finance arrangements include situations where the entity (customer) is seeking to extend repayment terms, as well as those where the supplier is seeking to be paid earlier than its usual repayment terms.

New IAS 7 disclosures

Proposed new IAS 7 disclosures include:

Reconciliation of changes in liabilities from financing activities – non-cash changes from supplier finance arrangements to be shown separately
Terms and conditions of each supplier finance arrangement (such as extended payment terms and security or guarantees provided)
For each supplier finance arrangement – as at the beginning and the end of the reporting period:
- The carrying amount of financial liabilities that are part of the supplier finance arrangement
- The line item where it appears in the balance sheet
- The carrying amount for which suppliers have already received payment from finance providers
- The range of payment due dates (e.g., 30 to 40 days after invoice date)
At the beginning and end of the reporting period, the range of payment due dates of trade payables that are not part of a supplier finance arrangement.

Amendments to IFRS 7 disclosures

The proposals note that the entity also needs to consider supplier finance arrangements when:

Describing how the entity manages liquidity risk
Quantifying concentrations of credit risk.

Do comparatives need to be restated?

Yes. The proposed additional disclosures apply retrospectively, therefore information must be provided for all new disclosures in the comparative period.

Comments close

The New Zealand Accounting Standards Board is seeking comments by 2 February 2022 and the IASB by 28 March 2022.

More information

For more information on the accounting and disclosure requirements for supplier finance arrangements, please refer to our eLearning module.

For more on the above, please contact your local BDO representative.

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