IASB publishes amendments to IAS 7 and IFRS 7 regarding supplier finance arrangements

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25 May, 2023

The International Accounting Standards Board (IASB) has published 'Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7)' to add disclosure requirements, and ‘signposts’ within existing disclosure requirements, that ask entities to provide qualitative and quantitative information about supplier finance arrangements.

 

Background

The IFRS Interpretations Committee received a submission about supply chain finance arrangements asking:

  • How an entity presents liabilities to pay for goods or services received when the related invoices are part of a supply chain finance (or reverse factoring) arrangement; and
  • what information about reverse factoring arrangements an entity is required to disclose in its financial statements.

In response to that submission, the Committee published an agenda decision in December 2020. However, feedback and input received — in particular from investors and analysts — suggested the information entities provide about supplier finance arrangements applying existing IFRS requirements does not meet all investor information needs.

In response to that feedback, the Board decided to amend IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures to add disclosure requirements, and ‘signposts’ within existing disclosure requirements, that ask entities to provide qualitative and quantitative information about supplier finance arrangements.

 

Key changes

The amendments in Supplier Finance Arrangements (Proposed amendments to IAS 7 and IFRS 7)

  • Do not define supplier finance arrangements. Instead, the amendments describe the characteristics of an arrangement for which an entity is required to provide the information. The amendments note that arrangements that are solely credit enhancements for the entity or instruments used by the entity to settle directly with a supplier the amounts owed are not supplier finance arrangements.
  • Add two disclosure objectives. Entities will have to disclose in the notes information that enables users of financial statements
    • to assess how supplier finance arrangements affect an entity’s liabilities and cash flows and
    • to understand the effect of supplier finance arrangements on an entity’s exposure to liquidity risk and how the entity might be affected if the arrangements were no longer available to it.
  • Complement current requirements in IFRSs by adding to IAS 7 additional disclosure requirements about:
    • the terms and conditions of the supplier finance arrangements;
    • for the arrangements, as at the beginning and end of the reporting period:
      • a) the carrying amounts of financial liabilities that are part of the arrangement and the associated line item presented;
      • b) the carrying amount of financial liabilities disclosed under a) for which suppliers have already received payment from the finance providers;
      • c) the range of payment due dates (for example, 30 to 40 days after the invoice date) of financial liabilities disclosed under a) and comparable trade payables that are not part of a supplier finance arrangement; and
    • the type and effect of non-cash changes in the carrying amounts of the financial liabilities that are part of the arrangement.
    The IASB decided that, in most cases, aggregated information about an entity’s supplier finance arrangements will satisfy the information needs of users of financial statements.
  • Add supplier finance arrangements as an example within the liquidity risk disclosure requirements in IFRS 7.

 

Effective date and transition

An entity applies the amendments to IAS 7 for annual reporting periods beginning on or after 1 January 2024 (with earlier application permitted) and the amendments to IFRS 7 when it applies the amendments to IAS 7.

There is a certain amount of transition relief provided, including relief regarding comparative information and interim period information.

 

Additional information

The following additional information is available on the website of the IFRS Foundation and on IAS Plus:

 

Correction list for hyphenation

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