Update on new disclosure rules that will increase transparency in the Supply Chain Finance industry

Update on new disclosure rules that will increase transparency in the Supply Chain Finance industry

Following our earlier blog in July 2021 “New disclosure rules will increase transparency and benefit the Supply Chain Finance industry” the IASB has now published an Exposure Draft. This contains the details around the proposed amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments, and are as follows:

  1. The proposed amendments will not define Payables Finance arrangements and instead explain the type of arrangements that are within its scope.
  2. To enable financial statement users to assess how Payables Finance arrangements affect an entity’s liabilities, cash flows and exposure to liquidity risk, draft amendments to IAS 7 (paragraph 44H) proposes for an entity to disclose:
    • The terms and conditions of each arrangement
    • For each arrangement, for the beginning and end of the reporting period:
      • The carrying amount of financial liabilities recognised in the entity’s statement of financial position that are part of the arrangement and the line items in which those financial liabilities are presented
      • The carrying amount of financial liabilities disclosed in (i) for which suppliers have already received payment from finance providers
    • The range of payment due dates of financial liabilities disclosed under (i) for the beginning and end of the reporting period, the range of payment due dates of payables that are not part of a Payables Finance arrangement
  3. Add Payables Finance arrangements as an example in IAS 7 (paragraph 44B) and IFRS 7 (paragraphs B11F and IG18) to highlight the importance of providing: (i) information about non-cash changes in liabilities arising from financing activities that arise from these arrangements, and (ii) liquidity risk information about these arrangements, respectively.

Demica supports the stance IASB has taken thus far and the general recommendation for greater disclosures in financial statements. This will allow investors and other stakeholders, who rely on credit and equity valuations, to be better informed of Payables Finance programmes and attract more into the market.

The proposed amendments in the Exposure Draft are open for comment until 28 March 2022.

Update on new disclosure rules that will increase transparency in the Supply Chain Finance industry

Maurice Benisty

Maurice joined Demica in October 2017 from Wells Fargo where he was CEO, Commercial Distribution Finance, responsible for a $3.0bn of receivables assets and over 400 people. Maurice joined Wells from GE Capital where he held a number of senior positions including Chief Commercial Officer of GE Capital International. Prior to GE, Maurice worked as a senior investment banker at Lehman Brothers, Bankers Trust and Paribas.