FASB issued an Accounting Standards Update (ASU) on Thursday designed to enhance transparency around supplier finance programs.
ASU No. 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, is effective for fiscal years beginning after Dec. 15, 2022, including interim periods within those fiscal years. A rollforward amendment in the ASU is effective for fiscal years beginning after Dec. 15, 2023.
"The FASB's new ASU responds to requests from investors for greater transparency around a buyer's use of supplier finance programs," FASB Chair Richard Jones said in a news release. "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."
Companies that use 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.
Specifically, buyer companies will be required to provide:
- The key terms of the supplier finance 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 at the end of the annual period (the outstanding confirmed amount).
- A description of where those obligations are presented in the balance sheet.
- A rollforward of those obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid.
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.