Supplier finance programs (also referred to as reverse factoring, payables finance or structured payables arrangements) allow a buyer to offer its suppliers the option to be paid by a third-party finance provider or intermediary in advance of an invoice due date, based on invoices that the buyer has confirmed as valid. Stakeholders have observed that there is a lack of transparency about supplier finance programs because (a) there are no explicit disclosure requirements in U.S. generally accepted accounting principles for the programs and (b) a buyer may present obligations covered by those programs in the same balance sheet line item as accounts payable or in another balance sheet line item depending on the facts and circumstances of the arrangement.
To address these issues, the Financial Accounting Standards Board (FASB) recently issued a proposed Accounting Standards Update (ASU), Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. If finalized, the proposed ASU would require a buyer that uses a supplier finance program in connection with the purchase of goods and services to disclose sufficient information about the program to allow an investor to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. These disclosures would include the key terms of the program and the following information about the amount of obligations outstanding at the end of the reporting period that the buyer has confirmed as valid to the finance provider or intermediary under the program (i.e., the amount of obligations confirmed under the program that remains unpaid by the buyer):
- A description of where those obligations are presented on the balance sheet
- A rollforward of those obligations showing, at a minimum, all of the following:
- The amount of those obligations outstanding at the beginning of the reporting period
- The amount of those obligations added to the program during the reporting period
- The amount of those obligations settled during the reporting period
- The amount of those obligations outstanding at the end of the reporting period
The amendments in the proposed ASU would not affect the recognition, measurement or financial statement presentation of obligations covered by supplier finance programs.
The proposed ASU would be applied on a retrospective basis for each period in which a balance sheet is presented. The effective date will be determined after the FASB considers feedback on the proposed ASU. Early application would be permitted.
The proposed ASU is available for comment until March 21, 2022.