FASB releases supplier finance standard

The Financial Accounting Standards Board issued an accounting standards update Thursday to improve transparency about the use of supplier finance programs for investors and other capital providers.

The update affects buyer companies that use supplier finance programs when buying goods or services. By entering into supplier finance programs with finance providers, suppliers can be paid by a third party before an invoice due date, based on invoices confirmed as valid by the buyer. These arrangements are also referred to as reverse factoring, payables finance or structured payables arrangements.

"The FASB's new ASU responds to requests from investors for greater transparency around a buyer's use of supplier finance programs," said FASB chair Richard Jones in a statement. "It enhances transparency by requiring new disclosures intended to help them better consider the effect of these programs on a company's working capital, liquidity and cash flows over time."

Under the updated standard, a business that uses a supplier finance program to purchase goods or services will be required to disclose enough information about the program to enable a financial statement user to understand the program's nature, activity during the period, changes from period to period, and the potential magnitude. Byers will need to provide the following information:

1. 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;

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

• 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.

The update, including more information about the effective dates and transition requirements, is available here.