The International Accounting Standards Board (IASB) has issued disclosure requirements to enhance the transparency of supplier finance arrangements and their effects on a company’s liabilities, cash flows and exposure to liquidity risk.
The disclosure requirements are the IASB’s response to investors’ concerns that some companies’ supplier finance arrangements are not sufficiently visible, hindering investors’ analysis.
The amendments supplement requirements already in IFRS Accounting Standards and require a company to disclose for their supplier finance arrangements:
- The terms and conditions
- The amount of the liabilities that are part of the arrangements, breaking out the amounts for which the suppliers have already received payment from the finance providers, and stating where the liabilities sit on the balance sheet
- Ranges of payment due dates
- Liquidity risk information
Supplier finance arrangements are often referred to as supply chain finance, trade payables finance or reverse factoring arrangements.
IASB chair, Andreas Barckow, said: “The new disclosure requirements will make visible a company’s usage of supplier finance arrangements and allow investors to make better-informed investment decisions by demonstrating how that usage has affected the company’s operations.”
The amendments, which affect IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures, will become effective for annual reporting periods beginning on or after 1 January 2024.