The Financial Accounting Standards Board (FASB) has published Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) to enhance the required disclosures relating to supplier finance program obligations.
Supplier finance programs (sometimes referred to as reverse factoring, payables finance or structured payables programs) allow suppliers to access payment in advance of an invoice due date, which is paid by a third-party finance provider or intermediary on the basis of the invoices that the buyer has confirmed as valid. Currently, there are no explicit GAAP disclosure requirements for such arrangements.
Typically, a buyer in a program (1) enters into an agreement with a finance provider or an intermediary to establish the program, (2) purchases goods and services from suppliers with a promise to pay at a later date, and (3) notifies the finance provider or intermediary of the supplier invoices that it has confirmed as valid. Suppliers may then request early payment from the finance provider or intermediary for those confirmed invoices.
ASU 2022-04 introduces new disclosure requirements for a buyer in a supplier finance program that are intended to provide users of the financial statements with sufficient information to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The new disclosures include (for each annual reporting period):
- 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:
- 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
- A roll forward of those obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid.
In addition, for each interim reporting period, the amount of obligations outstanding that the buyer has confirmed as valid to the finance provider or intermediary as of the end of the interim period is also required to be disclosed. ASU 2022-04 only applies to disclosures, and does not affect the recognition, measurement or financial statement presentation of the obligations covered by supplier finance programs.
ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023 (i.e., information is to be retrospectively disclosed for each period for which a balance sheet is presented, except for the roll forward information which is applied prospectively). Early adoption is permitted. During the fiscal year of adoption, the information on the key terms of the programs and the balance sheet presentation of the program obligations, which are annual disclosure requirements, should be disclosed in each interim period.