Supplier Finance Arrangements - Proposed RDR Concessions

The External Reporting Board (XRB) recently issued an amending standard for for-profit entities, Supplier Finance Arrangements, which introduces new disclosure requirements for entities that use supplier finance arrangements (also known as reverse factoring or supply chain financing).

The XRB is now proposing to provide reduced disclosure regime (RDR) concessions for the new disclosures introduced by the amending standard. The proposed concessions would mean that Tier 2 for-profit entities would not need to comply with any of the new disclosure requirements.

The XRB is seeking feedback on the proposed RDR concessions from stakeholders who are likely to be affected by the amending standard and its disclosure implications.

44F. An entity shall disclose information about its supplier finance arrangements that enables users of financial statements to assess the effects of those arrangements on the entity’s liabilities and cash flows and on the entity’s exposure to liquidity risk.
44G. Supplier finance arrangements are characterised by one or more finance providers offering to pay amounts an entity owes its suppliers and the entity agreeing to pay according to the terms and conditions of the arrangements at the same date as, or a date later than, suppliers are paid. These arrangements provide the entity with extended payment terms, or the entity’s suppliers with early payment terms, compared to the related invoice payment due date. Supplier finance arrangements are often referred to as supply chain finance, payables finance or reverse factoring arrangements. Arrangements that are solely credit enhancements for the entity (for example, financial guarantees including letters of credit used as guarantees) or instruments used by the entity to settle directly with a supplier the amounts owed (for example, credit cards) are not supplier finance arrangements.
44H. To meet this objective, an entity shall disclose in aggregate for its supplier finance arrangements:
 
(a) the terms and conditions of the arrangements (for example, extended payment terms and security or guarantees provided). However, an entity shall disclose separately the terms and conditions of arrangements that have dissimilar terms and conditions.
(b) as at the beginning and end of the reporting period:
 
(i) the carrying amounts, and associated line items presented in the entity’s statement of financial position, of the financial liabilities that are part of a supplier finance arrangement.
(ii) the carrying amounts, and associated line items, of the financial liabilities disclosed under (i) for which suppliers have already received payment from the finance providers
(iii) the range of payment due dates (for example, 30–40 days after the invoice date) for both the financial liabilities disclosed under (i) and comparable trade payables that are not part of a supplier finance arrangement. Comparable trade payables are, for example, trade payables of the entity within the same line of business or jurisdiction as the financial liabilities disclosed under (i). If ranges of payment due dates are wide, an entity shall disclose explanatory information about those ranges or disclose additional ranges (for example, stratified ranges).
(c) the type and effect of non-cash changes in the carrying amounts of the financial liabilities disclosed under (b)(i). Examples of non-cash changes include the effect of business combinations, exchange differences or other transactions that do not require the use of cash or cash equivalents (see paragraph 43).

About the RDR framework

The purpose of the RDR framework is to simplify the financial reporting for Tier 2 entities by removing or modifying some of the disclosure requirements in the accounting standards, while maintaining the same recognition and measurement requirements as Tier 1 entities.

The objective is to balance the benefits with the costs of preparing financial statements for Tier 2 for-profit entities. It achieves this by only requiring disclosures when they are of particular interest or value to users of those financial statements.

Rationale for proposing RDR concessions

We are proposing to provide RDR concessions for all of the new disclosures introduced by the amending standard because:

  • In this case, it is not clear that there is sufficient benefit to users of these financial statements to justify the additional costs.
  • We also observe that these disclosures are similar to those required by
  • These disclosures are already subject to RDR concessions under NZ IFRS RDR. Therefore, we consider that it would be consistent and logical to extend the same concessions to the new disclosures introduced by the amending standard.

Consultation closed on 30 September 2023

No submissions were received.

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