IASB publishes final amendments to IAS 7 and IFRS 7 on supplier financing arrangements

The additional disclosure requirements relate to the disclosure of financing arrangements granted to suppliers (“supplier finance arrangements”), which include reverse factoring arrangements in particular. The amendments do not define these arrangements; instead, they describe the characteristics of an arrangement for which an entity must include the proposed disclosures. Examples of the various forms of such arrangements are also presented.

The quantitative and qualitative disclosure requirements include:

• the contractual terms of the supplier finance arrangements (including extended payment terms, securities or guarantees),
• the following information about the arrangements at the beginning and end of the reporting period
  • the carrying amount of the financial liabilities that are part of the arrangement and
  • the carrying amount of the financial liabilities for which suppliers have already received payments from the finance providers,
  • the range of financial liability due dates (e. g., 30 to 40 days after the invoice date) that are part of the arrangement; and
• the range of maturity dates of financial liabilities and of comparable trade payables that are not part of a supplier finance arrangement.

While the Exposure Draft of the amendments to IAS 7 and IFRS 7 initially envisaged presenting these disclosures for each supplier financing arrangement individually, the IASB has finally decided that in most cases, aggregated information on these arrangements will satisfy the information needs of users of financial statements.

Entities must also disclose information that enables users of financial statements to evaluate the effects of supplier financing arrangements on the entity’s liabilities and cash flows. This is because the amendments do not contain any specific requirements for the disclosure of the underlying obligations. The disclosure requirements also apply with regard to the related cash flows, regardless of whether they are presented in the statement of cash flows as operating cash flows or as cash flows from financing activities.

Note: Uncertainties regarding the accounting treatment of reverse factoring transactions are addressed in the module announcement IDW RS HFA 50: Module IAS 1-M1. We have already reported on this in editions 3/2021 and 4/2021 of novus IFRS.

In addition, the amendments to IFRS 7 Financial Instruments: Disclosures include supplementary disclosures on liquidity risk management, taking into account existing supplier finance arrangements and the associated risks. These include, among other things, risk concentrations arising from supplier finance arrangements. The companies must also describe how they could be affected if the arrangements were no longer available.

The amendments to IAS 7 and IFRS 7 are effective for annual periods beginning on or after January 1, 2024. In the case of EU-IFRS financial statements, this is subject to a corresponding EU endorsement. As part of the first-time application, no corresponding comparative information for the prior-year period is to be disclosed.

Note: The press release is available on the IFRS Foundation’s website at the following link: https://www.ifrs.org/news-and-events/news/2023/05/iasb-increases-transparency-of-companies-supplier-finance/. Existing disclosure requirements for supply chain financing arrangements (reverse factoring) had already been explained by the IFRS IC in an agenda decision in December 2020, which is available at the following link: https://www.ifrs.org/news-and-events/updates/ifric/2020/ifric-update-december-2020/#5.