IASB Implements New Disclosure Requirements to Enhance Transparency of Supplier Finance
Hot on the heels of recent regulatory scandal surrounding supply chain finance deals, also known as reverse factoring, the International Accounting Standards Board (IASB) has issued new disclosure requirements designed to assuage investor concerns regarding the lack of visibility into company supplier finance arrangements.
Earlier this year Swiss regulators rebuked Credit Suisse for serious failings in its abrupt closure of $10 billion of funds linked to the now defunct financier Greensill. At the centre of the scandal were supply chain finance deals, which, although portrayed as low risk to investors, were not selected or reviewed by the bank. The IASB has now issued new disclosure requirements designed to reduce the risk of this type of deal. The requirements aim to increase transparency and provide insights into the effects of supplier finance arrangements on a company’s liabilities, cash flows, and exposure to liquidity risk.
The amendments, which supplement existing requirements in IFRS Accounting Standards, mandate companies to disclose information on the terms and conditions of their supplier finance arrangements: liabilities associated with the arrangements; range of payment due dates; and information on liquidity risk.
Andreas Barckow, Chair of the IASB, said “The new disclosure requirements will make visible a company’s usage of supplier finance arrangements and allow investors to make better-informed investment decisions by demonstrating how that usage has affected the company’s operations.”
Fundamentally, the best way to advert a crisis such as this is through effective reporting and quality, comparable, usable data. The hope is that this latest amendment will ensure that essential data is there to prevent a similar situation in future. The amendments, which affect IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures, will become effective for annual reporting periods beginning on or after 1 January 2024.
Read more (and access a webcast on the topic) here.
