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Why SMEs could have to expand supplier finance disclosures
The International Accounting Standards Board (IASB) plans to improve transparency of supplier finance disclosures in small- and medium-sized enterprise (SME) rules
Why SMEs could have to expand supplier finance disclosures
The International Accounting Standards Board (IASB) plans to improve transparency of supplier finance disclosures in small- and medium-sized enterprise (SME) rules
Following claims from stakeholders that SME financial statements lack transparency, the standard-setter is consulting on plans to include detailed disclosures on supplier finance arrangements and will address the lack of exchangeability between two currencies in the revised accounting standard.
The proposals would bring standards for SMEs accounting standard in line with improvements made to the full International Financial Reporting Standard (IFRS).
EXAMPLE
What is a supplier finance arrangement?
According to the IFRS Foundation, a supplier finance arrangement is “characterised by one or more finance providers offering to pay amounts an entity owes its suppliers and the entity agreeing to pay the finance providers at the same date as, or a date later than, suppliers are paid”.
Walk me through it
If the proposed rules go ahead, SMEs will have to disclose additional information on their supplier finance arrangements, including terms and conditions; amount of liabilities that are part of the arrangements, disclosing separately the amounts for which the suppliers have already received payment from finance providers, and stating where liabilities are presented in the statement of financial position; payment due dates; and the type and effect of non-cash changes.
Challenges
The amendments supplement requirements already in IFRS accounting standards and require a company to disclose:
- Terms and conditions
- The amount of liabilities that are part of the arrangements, breaking out the amounts for which the suppliers have already received payment from the finance providers, stating where the liabilities sit on the balance sheet
- Ranges of payment due dates
- Liquidity risk information about supplier finance arrangements.
Key takeaways
The new rules will align:
• Section 7 Statement of Cash Flows with International Accounting Standard (IAS) 7 Statement of Cash Flows, for supplier finance arrangements
• Section 30 Foreign Currency Translation with IAS 21 The Effects of Changes in Foreign Exchange Rates.
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