Lack of Exchangeability and Supplier Finance Arrangements (Agenda Paper 29)

In September 2022, the IASB published Exposure Draft Third edition of the IFRS for SMEs Accounting Standard (ED). The ED was open for comment for 180 days, which ended on 7 March 2023.

At its October 2023 meeting, the IASB tentatively decided to amend the scope of the second comprehensive review and include the amendments to full IFRS Accounting Standards for supplier finance arrangements and lack of exchangeability.

The purpose of this paper was to:

• Ask the IASB to decide how to propose amendments to the IFRS for SMEs Standard:
  • To align Section 7 Statement of Cash Flows of the Standard with Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7)
  • To align Section 30 Foreign Currency Translation of the Standard with Lack of Exchangeability (Amendments to IAS 21)
• Ask the IASB whether it is satisfied that it has complied with the applicable due process steps and that it should begin the balloting process for the addendum exposure draft
• Ask if any IASB member intends to dissent from the proposals in the addendum exposure draft

Staff recommendation

The staff recommended that the IASB:

• Amends the Standard to align Section 7 of the Standard with Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) and to align Section 30 of the Standard with Lack of Exchangeability (Amendments to IAS 21)
• Propose the amended and revised sections have the same effective date as the effective date of the third edition of the Standard
• Set the same effective date for the proposals in the addendum exposure draft as for the ED
• Propose no transition reliefs for amendments to Section 7 of the Standard
• Develop similar transition reliefs for amendments to Section 30 of the Standard as for the amendments to IAS 21
• Propose a 120-day comment period for the addendum exposure draft
• Consider illustrative examples (accompanying IAS 21) when updating the educational modules
• Specifically seek feedback on the proportionality of the proposals to SMEs

IASB discussion

Some IASB members challenged the staff analysis and recommendation in relation to supplier finance arrangements. For example, they did not think it was relevant to determine the accounting at the reporting date given that for many SMEs most of the financial liabilities that are part of a supplier finance arrangement will have been settled by the time their financial statements are issued. IASB members noted that there is a need to get full feedback through the ED on benefits and costs, instead of asking only for feedback on the proportionality of the cost and effort involved for SMEs.

IASB decision

All IASB members voted in favour of the staff recommendations on proposed amendments to the IFRS for SMEs Accounting Standard for supplier finance arrangements and lack of exchangeability except for specifically seeking feedback on the proportionality of the proposals to SMEs.

In addition, all IASB members agreed with the staff recommendation to provide a 120-day comment period for the proposals in the addendum exposure draft. All IASB members were satisfied that the IASB has complied with the applicable due process steps and that the staff should begin the balloting process for the addendum exposure draft. No IASB member intends to dissent from the proposals in the addendum exposure draft.