Supplier Finance Arrangements

Background

In June 2021, the IASB decided to add a narrow-scope standard-setting project to its work plan on supplier finance arrangements.

This project will add disclosure requirements, and ‘sign-posts’ within existing disclosure requirements, that would ask entities to provide qualitative and quantitative information about supplier finance arrangements. That information would help investors determine the effects of those arrangements on an entity’s liabilities and cash flows.

On 26 November 2021, the IASB published an exposure draft (ED) proposing changes in disclosure requirements to enhance the transparency of supplier finance arrangements and their effects on a company’s liabilities and cash flows. The IASB's exposure draft can be consulted here.

EFRAG's Comment Letter

On 18 January 2022, EFRAG published its draft comment letter. In the letter, EFRAG welcomed the ED of Supplier Finance Arrangements and the IASB's efforts to enhance the transparency of supplier finance arrangements and their effects on an entity's liabilities and cash flows. EFRAG's draft comment letter was subject to public consultation until 9 March 2022. 

On 29 March 2022, EFRAG published its comment letter on the project. In its comment letter, EFRAG supported the project which increased conformity with existing disclosure requirements in IFRS Standards. However, EFRAG considered that the IASB's proposals did not completely address the wider issue of presentation and classification of such arrangements in the primary financial statements, the necessary transparency on liquidity risk and working capital leverage and suggested possible improvements to the proposed requirements. EFRAG also made further suggestions of how to improve the proposed disclosure requirements of the exposure draft.

Amendments

On 25 May 2023, the IASB published the Amendments to IAS 7 and IFRS 7 - Supplier Finance Arrangements ("the Amendments"). The Amendments aims at enhancing the transparency of supplier finance arrangements and their effects on a company's liabilities, cash flows and exposure to liquidity risk. 

The Amendments complement the disclosure requirements set out in the Agenda Decision Supply Chain Financing Arrangements - Reverse Factoring published in December 2020 by the IFRS Interpretations Committee and require a company to disclose:

• the terms and conditions;
  

• the amount of the liabilities that are part of the arrangements, breaking out the amounts for which the suppliers have already received payment from the finance providers, and stating where the liabilities sit on the balance sheet:
  

• range of payment due dates; and
  

• liquidity risk information.
  

The Amendments will become effective for annual reporting periods beginning on or after 1 January 2024. 

On 18 July 2023, EFRAG issued a draft endorsement advice letter (DEA) and a separate invitation to comment relating to the endorsement for use in the EU of the Amendments. 

On 4 October 2023, EFRAG submitted its Endorsement Advice relating to the Amendments for use in the European Union and European Economic Area. EFRAG assessed that the Amendments met the technical endorsement criteria of the IAS Regulation and were conducive to the Euro​​​pean public good. EFRAG therefore recommended its endorsement.