Maintenance and consistent application

Date recorded:

Cover paper (Agenda Paper 12)

At this meeting, the IASB discussed feedback received in response to ED/2021/10 Supplier Finance Arrangements. The staff also sought clearance for the last due process steps to finalise the amendment to IAS 1 for Non-current Liabilities with Covenants (ED/2021/9). In addition, the IASB was asked whether they object to agenda decisions from the IFRS Interpretations Committee (IFRS IC).

There was no discussion on this paper.

Supplier Finance Arrangements—Feedback Summary—Background and overview (Agenda Paper 12A)

In November 2021, the IASB published ED/2021/10 that proposed amendments to IAS 7 and IFRS 7. The comment period ended on 28 March 2022.

The purpose of this meeting was to provide the IASB with a summary of feedback on the ED. The staff did not ask IASB members to make decisions at this meeting. However, to help the staff develop papers for future meetings, the staff asked for initial thoughts on the feedback and to comment on any feedback that was unclear, that provides new information or that needs further research.

There was no discussion on this paper.

Supplier Finance Arrangements—Feedback Summary—Scope (Agenda Paper 12B)

Many respondents agreed with describing—rather than attempting to develop a detailed definition for—supplier finance arrangements along the lines of the proposed description in the ED, for the reasons set out in the Basis for Conclusions (BC). Some of these respondents said a description is flexible and practical, and reduces structuring opportunities. One respondent said it found the description to be helpful and complete—that is, it identified no arrangement that an entity uses to finance amounts owed to suppliers that would not be captured by the description.

Many respondents asked questions about, or suggest clarifications to, aspects of the description of supplier finance arrangements.

A few respondents suggest alternative approaches. For example:

  • One respondent suggested defining the supplier finance arrangements in accounting terms, with descriptions of other services that are also used by the debtor beyond commercial settlement, including descriptions of any other agreements with banks or finance agents that are linked to the provision of commercial settlement services
  • Two respondents suggested developing a description that is the same as that proposed by the US Financial Accounting Standards Board (FASB) in its project Disclosure of Supplier Finance Program Obligations

IASB discussion

It was acknowledged that it would be impossible to address all comments received as they are going in very different directions. It is clear that some groups want more information while others want less. One IASB member said that the feedback to address only outlier arrangements would not respond to the user information needs. Another IASB member agreed that it would be helpful to have examples of the types of arrangements that are within the scope.

Supplier Finance Arrangements—Feedback Summary—Disclosure objective and requirements (Agenda Paper 12C)

Most respondents agreed (or did not disagree) with the proposed disclosure objective. A few of these respondents agreed to the extent it applies to specific types of supplier finance arrangements.

Many respondents generally agreed with the proposed disclosure requirements, noting that investors specifically asked for transparency about supplier finance arrangements. They said the information would enhance understandability and comparability when assessing performance and liquidity across different entities.

A few respondents disagreed with requiring the information on terms and conditions for the arrangement for each supplier finance arrangement because it could be commercially sensitive. One respondent said when the finance providers act solely as the entity’s paying agent with no extended payment terms, disclosure of the terms and conditions provides no relevant information to investors.

A few respondents disagreed to include liabilities that are part of the arrangement because, in their view, the information is irrelevant or potentially misleading before the liability is derecognised applying IFRS 9 or the supplier has received payment from the finance provider.

Many respondents disagreed with the requirement to disclose the carrying amount of financial liabilities for which suppliers have already received payment from the finance providers. They say:

  • This information is not relevant for all supplier finance arrangements
  • The proposed requirement to disclose the carrying amount of the liabilities that are part of the arrangement and the liquidity risk disclosure requirements in IFRS 7 already address the investor information needs
  • This information may lead investors to incorrectly include some trade payables within debt because they assume that this amount represents debt
  • This information provided only at the reporting date does not necessarily represent suppliers’ use of the arrangement
  • Aggregating and anonymising data is only possible for arrangements with a large number of suppliers
  • The FASB did not propose this as a requirement as part of its similar project on supplier finance arrangements

Many respondents disagreed with the proposed requirements to disclose the range of payment due dates of financial liabilities, most notably with the requirement to disclose payment due dates for trade payables that are not part of an arrangement. They say:

  • There is overlap between the proposed requirement and the requirement in IFRS 7 to disclose a maturity analysis for financial liabilities together with a description of how it manages the liquidity risk inherent in the analysis. Others, however, disagree—they say the requirement would extend an entity’s liquidity analysis from, for example, a year-by-year basis to monthly. In their view, this may reveal competitive information
  • The information would be irrelevant for lines of business for which supplier finance arrangements are not used and could be misleading. Liabilities that are part of supplier finance arrangements in one business line or jurisdiction may have shorter due dates than trade payables that are not part of such arrangements in another business line or jurisdiction
  • The FASB did not propose this as a requirement as part of its similar project on supplier finance arrangements

Some respondents disagreed that aggregating the information provided to meet the disclosure objective for different arrangements is only permitted when the terms and conditions of those arrangements are similar. They say information about each arrangement is unnecessary for investors to assess the effects of supplier finance arrangements on an entity’s liabilities and cash flows. They also say providing the information could be burdensome and may result in clutter in the financial statements.

IASB discussion

It was noted that in general respondents seemed to agree with the approach taken by the IASB with regard to disclosures. IASB members applauded that the approach currently being discussed in the Targeted Standards-level Review of Disclosures project was reflected here. However, one IASB member was concerned about disclosure overload, especially for entities that have many supplier finance agreements. Aggregating the information would only be allowed if the terms and conditions of the arrangements are similar, which is rarely the case. He also said that the staff should examine if any of the disclosure requirements would lead to repeated information of that already required in IFRS 7.

One IASB member highlighted the feedback on commercially sensitive disclosures and asked the staff if this could be reconsidered. Another IASB member noted the feedback that only relevant or material arrangements should be disclosed. She responded to that feedback that IFRS Accounting Standards only requires disclosure of material information and if information is not relevant, it would not be material. Therefore, the feedback was redundant and the staff was urged to use qualitative qualifiers sparingly as they are interpreted differently in practice. One IASB member said that on liabilities on which payment has been received, there could be a middle ground, i.e. require this information only when reliably available without undue cost or effort. Another IASB member acknowledged the concern that the information was difficult to audit and said that it would be possible to audit but at a higher cost, which should be considered when finalising the amendments.

Supplier Finance Arrangements—Feedback Summary—Examples added to disclosure requirements (Agenda Paper 12D)

Most respondents agreed with the proposal to add supplier finance arrangements as an example within the requirements to disclose information about changes in liabilities arising from financing activities and about an entity’s exposure to liquidity risk.

Some respondents disagree with adding examples to IAS 7 and IFRS 7 because, for example, they disagreed with the need for the project overall, say more transaction examples would be needed to address various permutations of supplier finance arrangements, or say the examples should clarify that no disclosures would be required if the entity’s payment terms remained unaffected by their use of supplier finance arrangements.

IASB discussion

IASB members highlighted the newly instigated project on cash flow statements and said that some of the information gathered during this project could be used in the new project.

Supplier Finance Arrangements—Feedback Summary—Other comments (Agenda Paper 12E)

Many respondents commented on aspects of the supplier finance arrangements project that are not summarised in Papers 12B–12D. The comments pertain to the following areas:

  • Transition
  • Additional or alternative disclosures
  • Alternative project approach
  • Interactions with other projects and IFRS Accounting Standards

IASB discussion

One IASB member highlighted the feedback on transition received from respondents that they would need more time to gather the information for retrospective application. Given the amendments only require disclosures, the IASB member would prefer that they are applied prospectively but therefore as soon as possible.

Non-Current Liabilities with Covenants (Amendments to IAS 1)—Effective date and due process (Agenda Paper 12F)

In June 2022, the IASB decided to finalise its proposed amendments to IAS 1 published in ED/2021/9, with some changes to the proposals. The purpose of this paper was to:

  • Ask the IASB whether it agrees with the staff recommendation with respect to the effective date for the amendments to IAS 1
  • Set out the steps in the IFRS Foundation Due Process Handbook that the IASB has taken in developing the amendments
  • Ask the IASB to confirm it is satisfied that it has complied with the due process requirements
  • Ask whether any IASB member intends to dissent from the amendments

Staff recommendation

The staff recommended that the IASB require entities to apply the amendments for annual reporting periods beginning on or after 1 January 2024.

IASB discussion

One IASB member said that the change of the effective date of the 2020 amendment should be effective immediately (not only on 1 January 2024) and therefore it should be stated in a separate paragraph to the effective date of the other changes. The staff confirmed that they would be able to do this.

IASB decision

All IASB members agreed with the effective date and were satisfied that the IASB has complied with the due process requirements. No IASB member indicated an intention to dissent from the amendment.

Negative Low Emission Vehicle Credits (IAS 37)—Finalisation of agenda decision (Agenda Paper 12G)

At its June 2022 meeting, the IFRS IC decided not to add a standard-setting project to the work plan in response to a submission on IAS 37 asking whether particular measures to encourage reductions in vehicle carbon emissions give rise to obligations that meet the definition of a liability in IAS 37. The IFRS IC instead decided to finalise an agenda decision.

The purpose of this meeting was to ask IASB members whether they object to the agenda decision.

IASB decision

There was no discussion on the paper. No IASB member objected to the agenda decision.

Special Purpose Acquisition Companies (SPAC): Classification of Public Shares as Financial Liabilities or Equity (IAS 32)—Finalisation of agenda decision (Agenda Paper 12H)

At its June 2022 meeting, the IFRS IC decided not to add a standard-setting project to the work plan in response to a submission on IAS 32 asking whether a special purpose acquisition company (SPAC), in applying IAS 32, classifies public shares it issues as financial liabilities or equity instruments. A SPAC is a listed entity that is established to acquire a yet-to-be-identified target entity. The IC instead decided to finalise an agenda decision.

The purpose of this meeting was to ask IASB members whether they object to the agenda decision.

IASB decision

There was no discussion on the paper. No IASB member objected to the agenda decision.

Transfer of Insurance Coverage under a Group of Annuity Contracts (IFRS 17)—Finalisation of agenda decision (Agenda Paper 12I)

At its June 2022 meeting, the IFRS IC decided not to add a standard-setting project to the work plan in response to a submission on IFRS 17 about a group of annuity contracts. The request asked how an entity determines the amount of the contractual service margin to recognise in profit or loss in a period because of the transfer of insurance coverage for survival in that period. The IC instead decided to finalise an agenda decision.

The purpose of this meeting was to ask IASB members whether they object to the agenda decision.

IASB decision

There was no discussion on the paper. No IASB member objected to the agenda decision.

IFRIC Update June 2022 (Agenda Paper 12J)

This agenda paper reproduces the June 2022 IFRIC Update. IASB members will be given an opportunity to ask questions or make comments with regard to the IFRIC Update.

There was no discussion on the paper.

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