Update on IFRS Disclosure Demands for Supplier Finance Arrangements | Mayer Brown – Retained Fascination

Subsequent on from our April 2020 write-up (the place we talked about the get in touch with from selected accounting corporations and other people for steerage from the Monetary Accounting Specifications Board (“FASB”) on the cure of trade payables programs) and our Oct 2020 submit (the place we furnished an update on the FASB’s proposals in response), on June 23, 2021, the IFRS Worldwide Accounting Requirements Board (“IASB”) tentatively agreed to include a slim-scope standard-location challenge in respect of “supplier finance arrangements” to its work program with the intention of amending specific IFRS and IAS requirements to consist of more disclosure specifications and clarifications in respect of “supplier finance arrangements.”

What instigated this?

The project was instigated subsequent calls from Moody’s Trader Expert services (Moody’s) in January 2020 for clarity on (i) how an entity need to existing liabilities for merchandise and expert services obtained when the associated invoices are element of a offer chain finance (or reverse factoring) arrangement and (ii) what information and facts about reverse factoring preparations an entity must disclose in its money statements.

What will the challenge protect?

The IASB has stated that the venture will be constrained to what it phone calls “supplier finance arrangements”—broadly, all those preparations utilized by an entity to fund payables owing to its suppliers—not the arrangements that an entity utilizes to fund its receivables (e.g., factoring and bill discounting). The IASB has mentioned its intention is not to determine “supplier finance arrangements” but alternatively to supply explanations of the variety of preparations that will slide inside of the scope of that term so as to stay clear of building a definition that is too restrictive. It is apparent that the IASB’s intention is to not restrict “supplier finance arrangements” to reverse discounting systems only but to include merchandise that have the exact same financial effect.

In quick, the IASB is proposing to amend:[1]

• IAS 7 to contain (i) an total disclosure goal with regards to supplier finance preparations to aid consumers of economical statements comprehend the nature, timing and uncertainty of funds flows arising from provider finance arrangements and (ii) specific disclosure goals furnishing quantitative data to enable end users of financial statements fully grasp the risks that occur from provider finance preparations and
• the liquidity dangers disclosure prerequisites in just IFRS 7 to incorporate supplier finance preparations as an example (owing to the simple fact that supplier finance arrangements can consequence in an entity’s trade payables all currently being paid out to a single financier and frequently these preparations can be terminated with small notice intervals).

What will the challenge not deal with?

It seems that the IASB does not intend to search at the to start with of Moody’s requested clarifications, i.e., how an entity really should present in their economical statements liabilities for items and services been given when the associated invoices are component of a provide chain finance (or reverse factoring) arrangement.

What’s the subsequent move?

The IASB will get ready an publicity draft for general public comment in Q4 2021.

[1] IFRS – Supplier Finance Preparations

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