The IMA® (Institute of Management Accountants) Financial Reporting Committee (FRC or Committee) issued a comment letter in response to the International Accounting Standards Board (IASB) exposure draft, ED/2021/10, Supplier Finance Arrangements (Proposal).
The IASB 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 arrangements, 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.
As the FRC notes in its comment letter, the Financial Accounting Standards Board (FASB) has also exposed proposed U.S. GAAP guidance regarding supplier finance programs (see Proposed Accounting Standards Update (ASU) No. 2021-007, Supplier Finance Programs (Subtopic 450-50): Disclosure of Supplier Finance Program Obligations). The FRC expressed its views on Proposed ASU No. 2021-007 via a comment letter dated February 25, 2022. In its comments to the IASB, the FRC expresses hope that the IASB and FASB will work toward minimizing differences in their respective standard-setting.
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:
- Although supplier finance arrangements can take many forms, an accounting model has evolved that generally results in the classification of transactions under these programs as trade accounts payable and operating cash flows. The FRC supports this model. However, preparers need operable guidance for analyzing and determining the appropriate accounting;
- The Committee believes that the ED’s proposed disclosure requirements, if adopted, would be operable and provide users with enhanced information on a buyer’s use of supplier finance programs. The Committee, however, cautions on adopting disclosures that would require preparers to source third-party information (as in the FASB proposal) and burden interim reporting.