Impact of proposed changes to Supplier Finance Arrangements: IAS 7 & IFRS 7

The International Accounting Standards Board “IASB” published the Exposure Draft on Supplier Finance Arrangements that proposes to amend IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures. The IASB is seeking feedback by March 28, 2022*

Who would be affected by the proposals:

An entity that buys goods and services on credit i.e., who enters into an arrangement with a bank whereby the bank agrees to make a payment to the supplier of the goods and services and the entity pays back to the bank later.

1. the terms and conditions of each arrangement;

2. for each arrangement, as at the beginning and end of the reporting period:

• the carrying amount of financial liabilities that are part of the arrangements and the line item(s) in which those financial liabilities are presented,
• the carrying amount of financial liabilities for which suppliers have already received payment from the finance providers,
• range of due dates for payment of those financial liabilities

3. as at the beginning and end of the reporting period, the range of due dates of payments of trade payables not part of a supplier finance arrangement

Intends to complement the requirements in IFRS Standards that apply to reverse factoring and similar arrangements.

Connotations:

• The proposed changes in disclosure requirements enhance the transparency of supplier finance arrangements and their effects on a company’s liabilities and cash flows to help them to analyse and understand the effects of such arrangements.
• In practice, the impact of a supplier finance arrangement on the presentation of a financial liability is likely to involve a high degree of judgement based on the specific facts and circumstances. Management should carefully examine the additional disclosures that will be necessary to explain the nature of the arrangements and the financial reporting judgements made.

*The above-mentioned Exposure Drafts are also hosted on the website of the ICAI for public comments with last date as January 30, 2022.

Simran Sandhu, Audit Associate, SW India