FASB Updates Reporting Standard for Supplier Finance Programs
The Financial Accounting Standards Board (FASB) recently issued an Accounting Standards Update (ASU) intended to enhance transparency about the use of supplier finance programs for investors and other allocators of capital.
The ASU affects buyer companies that use supplier finance programs in connection with buying goods or services. By entering into supplier finance programs with finance providers, suppliers have the option to be paid by a third party in advance of an invoice due date, based on invoices that the buyer has confirmed as valid. These arrangements are also commonly known as reverse factoring, payables finance or structured payables arrangements.
Under the new ASU, a company that uses a supplier finance program in connection with the purchase of goods or services will be required to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. Specifically, a buyer will be required to provide the following qualitative and quantitative information:
- The key terms of the program, including a description of the payment terms (including payment timing and basis for its determination) and assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary
- For the obligations that the buyer has confirmed as valid to the finance provider or intermediary:
a. The amount outstanding that remains unpaid by the buyer as of the end of the annual period (the outstanding confirmed amount)
b. A description of where those obligations are presented in the balance sheet
c. A rollforward of those obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid
The buyer should disclose the outstanding confirmed amount as of the end of each interim period, FASB said.
For more information, including effective dates and transition requirements, visit www.fasb.org.