FASB To Issue New Rules on Supply Chain Finance Programs Later This Year
The Financial Accounting Standards Board (FASB) recently approved new rules that will require companies to disclose information about the key terms of supply chain finance programs. FASB will likely issue the new standard, Accounting Standards Update (ASU), Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, this fall.
Stakeholders had expressed concern to FASB about a lack of transparency in supplier finance programs because there are no explicit disclosure requirements in GAAP regarding those arrangements. A buyer could show obligations covered by supplier finance programs in the same balance sheet line item as accounts payable or in another balance sheet line item, depending on the circumstances of the arrangement.
Under the new standard proposed last December, the buyer in the arrangement will have to disclose a general description of the payment terms, such as the payment timing and how it was determined, on their balance sheet. They will also have to disclose the assets pledged as security or other forms of guarantees provided for the payment to the bank or other third-party funder. Additionally, buyers will have to provide a “roll forward” amount, the invoiced amount they have yet to pay under the program, at the end of the reporting period.
Except for the amendment on roll-forward information, FASB stated that public companies should adopt the amendments in the final ASU for fiscal years beginning after Dec. 15, 2022, including interim periods within those fiscal years. The roll-forward amendment should be adopted for fiscal years beginning after Dec. 15, 2023. All other entities should be subject to the same effective dates as those for public companies. Early adoption will be permitted.