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Supply chain financing arrangements — reverse factoring

Date recorded:

Supply Chain Financing Arrangements—Reverse Factoring (Agenda Paper 4)


In its April 2020 meeting, the staff presented its research performed on the presentation and disclosure for supply chain financing arrangements. In response to the submitter's request asking the Committee to give guidance on the disclosure requirements and classification of liabilities, the staff analysed the application of IFRS Standards to the reverse factoring ("RF") arrangements in the statement of financial position, statement of cash flows and notes to the financial statements as presented in its June 2020 meeting. In the meeting, the Committee members generally agreed with the flow of the analysis but raised a number of concerns or suggestions for the staff to further clarify or amend the agenda decision.

Out of the 22 comment letters received, 18 respondents agreed with the Committee's decision to publish an agenda decision with 8 suggesting that work on a standard-setting project to develop requirements for disclosures should continue.

Staff analysis

One respondent considered the tentative agenda decision does not address adequately the concerns about RF and urged that a standard-setting project is required. Inadequate disclosures would result in difficulty in comparing financial statements of entities that use and do not use RF and it could obscure "debt-like" liabilities and could complicate default risk assessment for distinction between operating and financing cash flows. The staff considered an agenda decision should be published in addition to the Board's future consideration of whether to undertake standard-setting in respect to disclosure because the agenda decision also addresses the presentation in the statement of financial position and the statement of cash flows.

For the presentation of a financial liability subject to a RF arrangement or a new financial liability arising from a RF arrangement recognised upon derecognition of the originally financial liability, some of the respondents argued that the nature of liabilities arising from RF is always different from the nature of other financial liabilities as they are paying to a financial institution instead of a supplier. This should be presented separately. These respondents are of the view that permitting the presentation as trade and other payables would promote diverse presentation practices. The staff disagreed with this because RF arrangements could include very different terms of conditions and IAS 37:11(a) does not require a trade payable to be payable to the supplier. Therefore, they continue to agree with the Committee's conclusion that such liabilities maybe trade payable if they meet the criteria which indicate it is trade in nature.

Regarding the disclosures about liabilities subject to RF, the staff proposed changes to wording in the agenda decision after considering the respondents' comments.

A number of respondents provided specific suggestions about the disclosures the Board could consider. The staff planned to bring all of these together with the inputs from the outreach meetings held with investors and others and the views provided by the Committee members in the June 2020 meeting) to the Board for its consideration for a standard-setting project at a future Board meeting.

Staff recommendation

The staff recommended finalising the agenda decision with the proposed drafting changes.


The Committee members generally agreed with finalising the agenda decision but made drafting suggestions. They also agreed to bring the issues to the Board for future narrow-scope standard-setting.

A number of Committee members suggested to bring to the Board the feedback beyond the disclosure requirement, i.e. presentation in the statement of financial position and the statement of cash flows, for the Board to consider possible future narrow-scope standard-setting because RF arrangements and other forms of supply chain financing are common in practice. One Committee member also considered that the classification of the relevant cost in the statement of profit or loss, which is not discussed in the staff paper, should also be considered by the Board.

One Committee member commented that, if the original trade payable was legally extinguished due to the substantially different terms, it should be derecognised applying IFRS 9:3.3.2. Accordingly, it is not reasonable to present such a new financial liability payable to a bank as a trade payable, instead, it should be shown separately. Another Committee member echoed that if that is not clarified, it would increase diversity because some may use their own definition of working capital to present this debt-like liability as an ‘other payable’. For the statement of cash flows, rather than saying that IAS 7 provides no requirement to assist an entity to determine whether cash flows exist, a Committee member considered it would be better to imply judgement is required to determine the presentation of cash flows.

There were debates on the use of the word "sufficiently" versus "substantially" to describe how the term of the liabilities in the RF differs from that of the trade payables to warrant separate disclosure. Some supported "substantially" because it is the word used in IFRS 9:3.3.2 for the criteria for derecognition and it could mean comparison. However, others supported the staff amendment to use "sufficiently" because it does not intend to compare the magnitude of the difference and it is the term used in IAS 1:30 to determine if separate disclosure is required. The staff decided to use "sufficiently" after all.

The Committee decided, unanimously, to finalise the agenda decision with some suggested amendments to drafting for consistency or clarification


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