FASB publishes supplier financing standard
The Financial Accounting Standards Board has issued a update of accounting standards Thursday to improve transparency on the use of vendor financing programs for investors and other providers of capital.
The update affects corporate buyers who use vendor financing programs when purchasing goods or services. By entering into supplier financing programs with financing suppliers, suppliers can be paid by a third party before an invoice due date, based on invoices confirmed as valid by the buyer. These arrangements are also called reverse factoring, debt financing or structured debt arrangements.
“FASB’s new ASU responds to investor requests for greater transparency regarding a buyer’s use of supplier financing programs,” FASB Chairman Richard R. Jones said in a statement. “It improves transparency by requiring new information to help them better assess the effect of these programs on a company’s working capital, liquidity and cash flow over time.”
Under the updated standard, a company that uses a vendor financing program to purchase goods or services will be required to disclose sufficient information about the program to allow a user of the financial statements to understand the nature of the program, activity during the period, changes from period to period, and potential magnitude. Byers will need to provide the following information:
- The key program terms, including a description of the payment terms (including the payment schedule and the basis for its determination) and the assets pledged or other forms of security provided for the payment committed to the financing provider or to the intermediary;
- For bonds whose validity has been confirmed by the buyer to the funder or the intermediary:
- The outstanding amount remaining unpaid by the buyer at the end of the annual period (the confirmed outstanding amount);
- A description of where these obligations are presented on the balance sheet; and
- A roll-up of such obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid.
The buyer must disclose the confirmed amount remaining at the end of each interim period.
Update, including more information on effective dates and transition requirements, is available here.