Supplier Finance Arrangements
Paragraph 44F
An entity shall disclose information about its supplier finance arrangements (as described in paragraph 44G) that enables users of financial statements to assess the effects of those arrangements on the entity's liabilities and cash flows and on the entity's exposure to liquidity risk.
Interpretation
This paragraph sets the objective of the disclosure. It requires companies to provide enough information about their supplier finance arrangements so that users of financial statements can understand how these arrangements affect the company's liabilities, cash flows, and liquidity risk.
Paragraph 44G
Supplier finance arrangements are characterized by one or more finance providers offering to pay amounts an entity owes its suppliers and the entity agreeing to pay according to the terms and conditions of the arrangements at the same date as, or a date later than, suppliers are paid. These arrangements provide the entity with extended payment terms, or the entity's suppliers with early payment terms, compared to their related invoice payment due date. Supplier finance arrangements are often referred to as supply chain finance, payable finance or reverse factoring arrangements. Arrangements that are solely credit enhancements for the entity (for example, financial guarantees including letters of credit used as guarantees) or instruments used by the entity to settle directly with a supplier the amounts owed (for example, credit cards) are not supplier finance arrangements.
Interpretation
This paragraph defines what constitutes a supplier finance arrangement. It involves a third-party finance provider paying the company's suppliers, while the company pays the finance provider later. These arrangements may offer extended payment terms to the company or early payments to suppliers. However, arrangements like credit cards or financial guarantees that do not involve such third-party payments are excluded.
Paragraph 44H
To meet the objectives in paragraph 44F, an entity shall disclose in aggregate for its supplier finance arrangements:(a) The terms and conditions of the arrangements (for example, extended payment terms and security or guarantees provided).(b) As at the beginning and end of reporting period: (i) The carrying amounts, and associated line items presented in balance sheet of financial liabilities that are part of a supplier finance arrangement. (ii) The carrying amounts associated line items disclosed under (i) for which suppliers have already received payment from providers. (iii) The range of payment due dates (for example 30-40 days after invoice date both for financial liabilities disclosed under (i)) comparable trade payables not part supplier arrangement.(c) Type effect non-cash changes carrying amounts financial liabilities disclosed under (b)(i). Examples non-cash changes include effect business combinations exchange differences other transactions do not involve use cash equivalents.
Interpretation
This paragraph outlines the specific disclosures required. Companies must disclose:- The terms and conditions of the arrangements, especially if they vary.- The carrying amounts of liabilities under these arrangements at the beginning and end of the reporting period.- The amounts already paid to suppliers by the finance providers.- The range of payment due dates for these liabilities and comparable trade payables.- Any non-cash changes in these liabilities, such as those arising from business combinations or foreign exchange differences.
Sample Disclosure Format
The following is a sample disclosure format that can be used in the notes to financial statements:
Some suppliers choose to factor some of their receivables from the company with financial institutions. In certain cases, Company provides suppliers and/or banks with visibility of invoices that are approved for payment. This allows suppliers to obtain cash from the bank before the invoice due date, if they wish to do so.
Company's payment dates and terms remain the same regardless of whether a supplier chooses to factor their receivables. If a receivable is purchased by a third-party bank, the bank does not receive any additional security compared to the security originally held by the supplier.
The company reviews these arrangements to determine whether the payable should be treated as a trade payable or classified as financial liability. As of 31 March 20XX and 31 March 20XX, all such liabilities were classified as trade payables.
|
Carrying amount of trade payable |
Amount |
|
Presented in trade payable |
xxxxx |
|
- of which suppliers have received payment from the finance provider |
xxx |
|
xxxxx |
|
|
Range of payment due dates |
|
|
Liabilities that are part of the arrangements |
60 days |
|
Comparable trade payable that are not part of the arrangement |
60 days |
Notes
Disclosures should be included in the notes to accounts, preferably after the trade payables section. Entities should clearly distinguish liabilities under supplier finance arrangements from regular trade payables. The disclosure should include terms, carrying amounts, payment due date ranges, and any non-cash changes.
Applicability Dates
Paragraph 62
Supplier Finance Arrangements added paragraphs 44F-44H. An entity shall apply those amendments for annual reporting periods beginning on or after 1 April 2025.
Paragraph 63
When applying Supplier Finance Arrangements, an entity is not required to disclose:
(a) Comparative information for any reporting periods presented before the beginning of the annual reporting period in which the entity first applies those amendments.
(b) The information otherwise required by paragraph 44H(b)(ii)-(iii) as at the beginning of the annual reporting period in which the entity first applies those amendments.
(c) The information otherwise required by paragraphs 44F-44H for any interim period presented within the annual reporting period in which the entity first applies those amendments.
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