IASB publishes final amendments to IAS 7 and IFRS 7 on supplier financing arrangements

On May 25, 2023, the IASB publis­hed amend­ments to IAS 7 and IFRS 7 (Supplier Fi­nance Ar­ran­ge­ments), which in­clude supp­le­men­tary dis­clo­sure re­qui­re­ments un­der IAS 7 “State­ments of Cash Flows” and IFRS 7 “Fi­nan­cial In­stru­ments: Dis­clo­sures”.

The ad­di­tio­nal dis­clo­sure re­qui­re­ments re­late to the dis­clo­sure of fi­nan­cing ar­ran­ge­ments gran­ted to suppliers (“supplier fi­nance ar­ran­ge­ments”), which in­clude re­verse fac­to­ring ar­ran­ge­ments in par­ti­cu­lar. The amend­ments do not de­fine these ar­ran­ge­ments; in­stead, they de­scribe the cha­rac­te­ristics of an ar­ran­ge­ment for which an en­tity must in­clude the pro­po­sed dis­clo­sures. Ex­am­ples of the va­rious forms of such ar­ran­ge­ments are also pre­sen­ted.

The quan­ti­ta­tive and qua­li­ta­tive dis­clo­sure re­qui­re­ments in­clude:

  • the con­trac­tual terms of the supplier fi­nance ar­ran­ge­ments (in­clu­ding ex­ten­ded pay­ment terms, se­cu­ri­ties or gua­ran­tees),
  • the fol­lo­wing in­for­ma­tion about the ar­ran­ge­ments at the be­gin­ning and end of the re­por­ting pe­riod
    • the car­ry­ing amount of the fi­nan­cial lia­bi­li­ties that are part of the ar­ran­ge­ment and
    • the car­ry­ing amount of the fi­nan­cial lia­bi­li­ties for which suppliers have al­re­ady re­cei­ved pay­ments from the fi­nance pro­vi­ders,
    • the range of fi­nan­cial lia­bi­lity due dates (e. g., 30 to 40 days af­ter the in­voice date) that are part of the ar­ran­ge­ment; and
  • the range of ma­tu­rity dates of fi­nan­cial lia­bi­li­ties and of com­pa­ra­ble trade payab­les that are not part of a supplier fi­nance ar­ran­ge­ment.

While the Ex­po­sure Draft of the amend­ments to IAS 7 and IFRS 7 in­iti­ally en­vi­sa­ged pre­sen­ting these dis­clo­sures for each supplier fi­nan­cing ar­ran­ge­ment in­di­vi­dually, the IASB has fi­nally de­ci­ded that in most ca­ses, ag­gre­ga­ted in­for­ma­tion on these ar­ran­ge­ments will sa­tisfy the in­for­ma­tion needs of users of fi­nan­cial state­ments.

En­ti­ties must also dis­close in­for­ma­tion that enab­les users of fi­nan­cial state­ments to eva­luate the ef­fects of supplier fi­nan­cing ar­ran­ge­ments on the en­tity’s lia­bi­li­ties and cash flows. This is be­cause the amend­ments do not con­tain any spe­ci­fic re­qui­re­ments for the dis­clo­sure of the un­der­ly­ing ob­li­ga­ti­ons. The dis­clo­sure re­qui­re­ments also ap­ply with re­gard to the re­la­ted cash flows, re­gard­less of whe­ther they are pre­sen­ted in the state­ment of cash flows as ope­ra­ting cash flows or as cash flows from fi­nan­cing ac­tivi­ties.

Note: Un­cer­tain­ties re­gar­ding the ac­coun­ting tre­at­ment of re­verse fac­to­ring tran­sac­tions are ad­dres­sed in the mo­dule an­noun­ce­ment IDW RS HFA 50: Mo­dule IAS 1-M1. We have al­re­ady re­por­ted on this in edi­ti­ons 3/2021 and 4/2021 of no­vus IFRS.

In ad­di­tion, the amend­ments to IFRS 7 Fi­nan­cial In­stru­ments: Dis­clo­sures in­clude supp­le­men­tary dis­clo­sures on li­qui­dity risk ma­nage­ment, ta­king into ac­count exis­ting supplier fi­nance ar­ran­ge­ments and the as­so­cia­ted risks. These in­clude, among other things, risk con­cen­tra­ti­ons ari­sing from supplier fi­nance ar­ran­ge­ments. The com­pa­nies must also de­scribe how they could be af­fec­ted if the ar­ran­ge­ments were no lon­ger avail­able.

The amend­ments to IAS 7 and IFRS 7 are ef­fec­tive for an­nual pe­riods be­gin­ning on or af­ter Ja­nu­ary 1, 2024. In the case of EU-IFRS fi­nan­cial state­ments, this is sub­ject to a cor­re­spon­ding EU en­dor­se­ment. As part of the first-time ap­pli­ca­tion, no cor­re­spon­ding com­pa­ra­tive in­for­ma­tion for the prior-year pe­riod is to be dis­clo­sed.

Note: The press re­lease is avail­able on the IFRS Foun­da­tion’s web­site at the fol­lo­wing link:­crea­ses-trans­pa­rency-of-com­pa­nies-supplier-fi­nance/. Exis­ting dis­clo­sure re­qui­re­ments for supply chain fi­nan­cing ar­ran­ge­ments (re­verse fac­to­ring) had al­re­ady been ex­plai­ned by the IFRS IC in an agenda de­ci­sion in De­cem­ber 2020, which is avail­able at the fol­lo­wing link:­dates/if­ric/2020/if­ric-up­date-de­cem­ber-2020/#5.

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