IASB publishes final amendments on supplier finance arrangements

Introduction

In May 2023, the International Accounting Standards Board (IASB) published amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures: Supplier Finance Arrangements, that set out new disclosure requirements for entities with such arrangements. Supplier finance arrangements are also referred to as supply chain finance, payables finance or reverse factoring arrangements.

Background

These amendments result from the exposure draft published in November 2021 and supplement the IFRS Interpretations Committee’s agenda decision of December 2020 on how to account for these agreements in the statement of financial position and the cash flow statement.

The original request to the IFRS Interpretations Committee came from rating agencies underling the growing importance of financing through such types of arrangements and the differences seen in practice between the classification and disclosure in the notes of the related liabilities and resulting liquidity risk.

What are the new disclosure requirements?

The new disclosure requirements are intended to enable users of the financial statements of entities using these arrangements to:

• assess the impact of such arrangements on the entity’s liabilities and cash flows; and
• understand their effect on the entity’s exposure to liquidity risk and how the entity might be affected if these arrangements were no longer available to it.

The amendments require entities that use such arrangements to disclose:

• the terms and conditions of each supplier finance arrangement;
• the following quantified information, at the start and end of the reporting period:
  • the carrying amount of financial liabilities that are part of the arrangement and the line item(s) in which those financial liabilities are presented;
  • the carrying amount of those financial liabilities for which suppliers have already received payment from the finance providers, and the line item(s) in which they are presented; and
  • the range of payment due dates of financial liabilities that are part of a supplier finance arrangement and those of comparable trade payables that are not part of a supplier finance arrangement;
• the nature and effects of non-cash changes in the carrying amounts of financial liabilities that are part of a supplier financing arrangement.

Effective date

These amendments are effective for accounting periods beginning on or after 1 January 2024. The amendments have not as yet been UK-adopted nor endorsed by the EU.  

Transitional relief is available for comparative information in the annual financial statements for the year of first-time application and for disclosures in the interim financial statements during the first year of application.