Insights
posted on February 25, 2022

SINGAPORE

The International Accounting Standards Board (IASB) has published two exposure drafts (ED) that are currently open for comment until March 2022. Following are details of the two EDs:

IASB proposes disclosure requirements to enhance the transparency of supplier finance arrangements

The IASB has published an ED on proposed changes in disclosure requirements to enhance the transparency of supplier finance arrangements and their effects on a company’s liabilities and cash flows.

Supplier finance arrangements are often referred to as supply chain finance, payables finance or reverse factoring arrangements.

The proposed targeted amendments to the current disclosure requirements are designed to meet investors’ demands for more detailed information to help them analyse and understand the effects of such arrangements.

Under the IASB’s proposals, a company would be required to disclose information that enables investors to assess the effects of the company’s supplier finance arrangements on its liabilities and cash flows. These proposals would amend IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures. The proposals complement an agenda decision published by the IFRS Interpretations Committee in 2020.

The proposed amendments would affect a company that, as a buyer, enters into one or more supplier finance arrangements, under which the company, or its suppliers, can access financing for amounts the company owes its suppliers.

The ED Supplier Finance Arrangements is open for comment until 28 March 2022.

To access the ED, click here.

 

IASB proposes narrow-scope amendments to IAS 1 to improve information companies provide about long-term debt with covenants

The IASB has issued an ED proposing amendments to IAS 1 Presentation of Financial Statements to improve the information companies provide about long-term debt with covenants.

IAS 1 requires a company to classify a liability as non-current only if the company has a right to defer settlement of the liability for at least 12 months after the reporting date. However, such a right is often subject to the company complying with covenants after the reporting date. For example, a company might have long-term debt that could become repayable within 12 months if the company fails to comply with covenants after the reporting date.

The proposed amendments announced today would specify that, in such a situation, covenants would not affect the classification of a liability as current or non-current at the reporting date. Instead, a company would:

  • present non-current liabilities that are subject to covenants on the statement of financial position separately from other non-current liabilities; and
  • disclose information about the covenants in the notes to its financial statements, including their nature and whether the company would have complied with them based on its circumstances at the reporting date.
  • The IASB expects that these proposals will improve the information a company provides about non-current liabilities with covenants by enabling investors to assess whether such liabilities could become repayable within 12 months.

The proposals also address feedback from stakeholders about the classification of debt as current or non-current when applying requirements introduced in 2020 that are not yet in effect. Consequently, the IASB is also proposing to defer the effective date of those requirements to align with the proposed amendment.

The ED Non-current Liabilities with Covenants is open for comment until 21 March 2022.

To access the ED, click here.

To access the Snapshot of the ED, click here.

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