The IMA® (Institute of Management Accountants) Financial Reporting Committee (FRC or Committee) issued a comment letter in response to the Financial Accounting Standards Board (FASB) Proposed Accounting Standards Update (ASU) No. 2021-007, Supplier Finance Programs (Subtopic 450-50): Disclosure of Supplier Finance Program Obligations (Proposal).
The FASB issued the Proposal with the objectives of enhancing transparency and improving disclosures about supplier finance programs. While the nature of these programs varies, generally, under these agreements, a buyer arranges with a finance company to pay suppliers for the purchase of goods and services before the invoice date. The supplier can then seek payment on valid invoices directly from the finance company.
In its comment letter, the FRC supports the objectives of increased transparency and disclosure regarding buyers’ use of these programs. The Committee’s observations include the following:
- The Proposal’s model, which characterizes obligations under these programs as accounts payable and the related cash flows as operating, is generally appropriate;
- As the Proposal only addresses disclosure, it would be beneficial for the FASB to consider a separate project that codifies existing accounting practices. Today, most companies continue to apply interpretations of nonauthoritative SEC speeches to account for these programs;
- The Proposal’s contemplated roll forward disclosure of outstanding supplier program obligations appears unnecessary; and
- A previously considered requirement regarding the disclosure of outstanding obligations paid by a finance company to a supplier would have required a buyer to compile and disclose third-party information. From the standpoint of operability, it is beneficial that the FASB did not take this forward.