Update on IFRS Disclosure Requirements for Provider Finance Preparations

Adhering to on from our April 2020 put up (wherever we reviewed the connect with from certain accounting firms and some others for steering from the Economical Accounting Standards Board (“FASB”) on the treatment method of trade payables plans) and our October 2020 write-up (exactly where we presented an update on the FASB’s proposals in reaction), on June 23, 2021, the IFRS Global Accounting Specifications Board (“IASB”) tentatively agreed to add a slim-scope normal-environment undertaking in regard of “supplier finance arrangements” to its do the job program with the intention of amending selected IFRS and IAS specifications to incorporate extra disclosure needs and clarifications in regard of “supplier finance arrangements.”

What instigated this?

The job was instigated following calls from Moody’s Trader Expert services (Moody’s) in January 2020 for clarity on (i) how an entity must present liabilities for goods and expert services gained when the connected invoices are element of a offer chain finance (or reverse factoring) arrangement and (ii) what facts about reverse factoring preparations an entity should disclose in its fiscal statements.

What will the project deal with?

The IASB has stated that the task will be minimal to what it calls “supplier finance arrangements”—broadly, all those arrangements used by an entity to fund payables owing to its suppliers—not the preparations that an entity utilizes to fund its receivables (e.g., factoring and invoice discounting). The IASB has said its intention is not to determine “supplier finance arrangements” but as a substitute to offer explanations of the type of preparations that will slide in the scope of that phrase so as to stay away from 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 courses only but to incorporate solutions that have the same economic impact.

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

• IAS 7 to include (i) an general disclosure objective with regards to supplier finance arrangements to enable consumers of economic statements have an understanding of the mother nature, timing and uncertainty of money flows arising from supplier finance arrangements and (ii) unique disclosure goals furnishing quantitative information to assist buyers of economic statements understand the challenges that arise from supplier finance arrangements and
• the liquidity challenges disclosure specifications inside IFRS 7 to include supplier finance arrangements as an example (due to the fact that provider finance arrangements can consequence in an entity’s trade payables all getting paid out to a one financier and generally this kind of preparations can be terminated with brief discover durations).

What will the undertaking not protect?

It seems that the IASB does not intend to look at the 1st of Moody’s asked for clarifications, i.e., how an entity ought to current in their money statements liabilities for merchandise and providers been given when the similar invoices are component of a provide chain finance (or reverse factoring) arrangement.

What’s the following stage?

The IASB will put together an publicity draft for public comment in Q4 2021.