Following on from our April 2020 submit (wherever we mentioned the contact from sure accounting corporations and others for steerage from the Money Accounting Expectations Board (“FASB”) on the therapy of trade payables systems) and our October 2020 post (where by we supplied an update on the FASB’s proposals in reaction), on June 23, 2021, the IFRS International Accounting Specifications Board (“IASB”) tentatively agreed to insert a narrow-scope typical-location job in respect of “supplier finance arrangements” to its do the job approach with the intention of amending sure IFRS and IAS specifications to include more disclosure needs and clarifications in regard of “supplier finance preparations.”

What instigated this?

The undertaking was instigated pursuing phone calls from Moody’s Trader Solutions (Moody’s) in January 2020 for clarity on (i) how an entity really should current liabilities for products and expert services been given when the connected invoices are portion of a offer chain finance (or reverse factoring) arrangement and (ii) what information about reverse factoring arrangements an entity ought to disclose in its economic statements.

What will the job go over?

The IASB has reported that the venture will be limited to what it phone calls “supplier finance arrangements”—broadly, those arrangements utilised by an entity to fund payables due to its suppliers—not the arrangements that an entity makes use of to fund its receivables (e.g., factoring and invoice discounting). The IASB has stated its intention is not to outline “supplier finance arrangements” but in its place to supply explanations of the form of preparations that will fall inside the scope of that phrase so as to keep away from generating a definition that is too restrictive. It is obvious that the IASB’s intention is to not limit “supplier finance arrangements” to reverse discounting programs only but to include products that have the exact same economic result.

In transient, the IASB is proposing to amend:[1]

  • IAS 7 to include things like (i) an over-all disclosure objective regarding supplier finance preparations to assistance people of financial statements realize the character, timing and uncertainty of funds flows arising from provider finance arrangements and (ii) certain disclosure goals offering quantitative info to assist people of money statements have an understanding of the pitfalls that arise from supplier finance arrangements and
  • the liquidity dangers disclosure necessities in just IFRS 7 to include provider finance arrangements as an example (owing to the truth that supplier finance arrangements can final result in an entity’s trade payables all getting compensated to a single financier and often this kind of arrangements can be terminated with short see intervals).

What will the task not address?

It seems that the IASB does not intend to search at the first of Moody’s requested clarifications, i.e., how an entity really should existing in their money statements liabilities for items and expert services acquired when the related invoices are portion of a source chain finance (or reverse factoring) arrangement.

What is the upcoming phase?

The IASB will prepare an publicity draft for public comment in Q4 2021.

 

[1] IFRS – Provider Finance Preparations

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