Tier 2 disclosures for supplier finance arrangements
Tier 2 disclosures for supplier finance arrangements
Entities preparing financial statements applying the Tier 2 Simplified Disclosures must, in the future, include the same disclosures about their supplier finance arrangements as Tier 1 entities.
Effective date
The new disclosures are effective for annual periods beginning on or after 1 January 2024 and ending on or after 30 June 2024 but can be adopted early. Most commonly, this will apply for the first time to entities with 31 December 2024 year ends, but it could also apply to an entity with a shortened year-end that starts on 1 January 2024 and ends on 30 June 2024.
What is a ‘supplier finance arrangement’?
The amendments do not define a ‘supplier finance arrangement’ but rather describe the characteristics of a ‘supplier finance arrangement’ in AASB 1060, paragraph 119A as follows:
- One or more finance providers offer to pay amounts an entity owes its suppliers
- The entity agrees to pay the finance provider(s) according to the terms and conditions of the arrangement at the same date, or a later date than, suppliers are paid.
Under a supplier finance arrangement, the entity gets extended payment terms, or the supplier gets early repayment terms, compared to the invoice payment due date. These arrangements are often referred to as ‘supply chain finance’, ‘payables finance’ or ‘reverse factoring arrangements’.
Supplier finance arrangements do not include:
- Arrangements that are solely credit enhancements for the entity (for example, financial guarantees including letters of credit used as guarantees)
- Instruments used by the entity to settle amounts owed directly with a supplier (for example, credit cards).
New disclosures
AASB 1060, paragraph 119B contains the following new disclosures in aggregate for its supplier finance arrangements:
- The terms and conditions of supplier finance arrangements including, for example, details of extended payment terms, and security or guarantees provided. However, separate disclosure is required about the terms and conditions of arrangements that have dissimilar terms and conditions
- At the beginning and the end of the reporting period:
- The carrying amount of financial liabilities that are part of the supplier finance arrangement, and the line item where it appears in the balance sheet
- The carrying amount of financial liabilities and the associated line item in the balance sheet disclosed under (i) above for which suppliers have already received payment from finance providers
- The range of payment due dates (e.g. 30 to 40 days after invoice date) for both:
- Items disclosed under (i) above
- Comparable trade payables that are not part of supplier finance arrangements (for example, those within the same line of business or jurisdiction as financial liabilities disclosed under (i) above)
If ranges of payment due dates are wide, the entity must disclose explanatory information about those ranges or disclose additional ranges (for example, stratified ranges)
- The type and effect of non-cash changes in the carrying amounts of financial liabilities disclosed under (i) above (for example, business combinations, exchange differences, etc.).
Transition exemptions
Comparative information is not required in the first year. For example, suppose the entity applies the amendments to its 31 December 2024 year-end for the first time. In that case, it need not provide comparative disclosures for the year ending 31 December 2023 or any prior periods presented.
Also, the information required, as shown in (ii) and (iii) above, is not required at the beginning of the first annual reporting period to which these amendments apply (i.e. 1 January 2024 for a 31 December 2024 year-end).
Need assistance?
Please contact our IFRS & Corporate Reporting team to assist with accounting for supplier finance arrangements and the requisite disclosures.