FASB issues standard for disclosures on supplier finance programs

On September 29, 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances the transparency about the use of supplier finance programs for investors and other allocators of capital.

Supplier finance programs

The ASU affects buyer companies that use supplier finance programs in connection with purchasing 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.

Required disclosures and key terms

The provisions of the new ASU require a buyer to provide the following qualitative and quantitative information:

1. 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.
2. For the obligations that the buyer has confirmed as valid to the finance provider or intermediary; and

• The amount outstanding that remains unpaid by the buyer as of the end of the annual period (the outstanding confirmed amount);
• A description of where those obligations are presented in the balance sheet; and 
• 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.

Effective date

ASU No. 2022-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022, except for the rollforward of the supplier finance program obligations, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted.

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