IASB proposes enhanced disclosures on supplier finance
The International Accounting Standards Board (IASB) published proposed changes to disclosure requirements aimed at enhancing transparency on supplier finance arrangements and their effects on a company’s liabilities and cash flows.
Roughly speaking, under supplier finance arrangements – also referred to as supply chain finance, payables finance or reverse factoring – a company purchases and receives goods or services from a supplier, which are paid for by a financial institution. The company normally agrees to pay back the finance provider at a later date. These arrangements can play a substantial role in companies’ financial health, and cause it to deteriorate rapidly if withdrawn.
“Investors require more detailed disclosures about companies’ supply chain finance arrangements as these funding practices are becoming increasingly common,” says IASB Chair Andreas Barckow. “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.”
These proposals would amend two standards: IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures. They are open for public comment until 28 March 2022, and are also accompanied by a useful explanatory Investor Perspectives article by IASB Member Zach Gast.