International Accounting Standards

New disclosure requirements for supplier finance arrangements

In May 2023, the International Accounting Standards Board (IASB) issued amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures that are designed to meet investors’ demands for more detailed information about supplier finance arrangements. Such arrangements are sometimes referred to as supply chain finance, payables finance or reverse factoring arrangements. A typical supplier finance arrangement is illustrated below.

The amendments explain that supplier finance arrangements are characterised by one or more finance providers offering to pay amounts that an entity owes its suppliers and the entity then agreeing to pay the finance provider at the same date or later. Such arrangements thereby provide either the buyer with extended payment terms, or the supplier with early payment terms, compared to the invoice payment due date. The amendments also explain that certain arrangements (for example, credit cards) are not supplier finance arrangements.

The amendments require the buyer to disclose information about its supplier finance arrangements to enable users of financial statements to assess the effects of those arrangements on the entity’s liabilities and cash flows and on the entity’s exposure to liquidity risk. Consequently, the buyer is required to disclose: 

• the terms and conditions of any supplier finance arrangements;
• the carrying amounts of financial liabilities that are part of any such arrangement both at the beginning and the end of the reporting period, separately disclosing any amounts where the supplier has already taken payment from the third-party finance provider; 
• the range of payment due dates (for example 30 to 40 days after the invoice date) for both payables within supplier finance arrangements and comparable payables that are not part of such an arrangement with further explanation provided when the ranges of payment due dates are wide;
• the type and effect of any non-cash changes in the carrying amounts of the financial liabilities that are part of the arrangement; and
• related liquidity risk information.

The IASB has decided that, in most cases, aggregated information may be disclosed.

Other parties to the supplier finance arrangement are not required to make any of the above disclosures.

An entity must apply the amendments for annual reporting periods beginning on or after 1 January 2024. Early application is permitted. The amendments to IFRS 7 must be applied at the same time as the amendments to IAS 7. Some transitional relief is provided regarding comparative information and interim period information.

IAS 12 amended to provide temporary relief from deferred tax accounting for ‘pillar two’ tax rules

Also in May 2023, the IASB issued amendments to IAS 12 Income Taxes in response to concerns raised by stakeholders about the potential accounting implications of the OECD’s ‘pillar two’ tax rules (discussed in more depth in April’s technical round-up). 

These amendments will introduce:

• a temporary exception to the requirements to recognise and disclose information about deferred tax assets and liabilities related to ‘pillar two’ income taxes; and
• targeted disclosure requirements to help investors better understand a company’s exposure to income taxes arising from the reform, particularly before legislation implementing the rules is in effect.

Companies can benefit from the temporary exception immediately but are only required to provide the disclosures to investors for annual reporting periods beginning on or after 1 January 2023.

The IASB is monitoring developments and plans to undertake further work to determine whether to remove the temporary exception – or to make it permanent – after there is sufficient clarity about how jurisdictions have implemented the rules and the related effects on entities.

Narrow-scope amendments proposed to financial instrument classification and measurement requirements

In March 2023, the IASB published an exposure draft proposing a number of narrow scope amendments to the classification and measurement requirements in IFRS 9 Financial Instruments. The proposed amendments primarily respond to feedback received from the post-implementation review of the classification and measurement requirements in IFRS 9, which concluded in December 2022. 

Arguably, the most significant proposal relates to the settlement of financial liabilities via electronic payment systems. Many entities currently treat the date on which they initiate the payment instruction as the settlement date even though the cash has not actually been delivered by the entity. Under the proposals this approach would only be allowed if certain specified criteria were met. 

Another important proposal – particularly for banks and other financial institutions – relates to financial assets with contractual terms that could change the timing or amount of contractual cash flows, eg, loans with ESG-linked features. The proposals set out additional application guidance to help an entity assess whether the terms of such arrangements are consistent with a basic lending arrangement. This could result in some financial assets that are currently measured at amortised cost or at fair value through other comprehensive income being measured at fair value through profit and loss.

The deadline for comments is 19 July 2023. 

Post-implementation review of IFRS 9’s impairment model launched

In May 2023, the IASB launched its post-implementation review of the expected credit loss requirements in IFRS 9 Financial Instruments. The IASB is seeking stakeholders’ feedback on how the application of this model –introduced in response to the 2007-08 global financial crisis – has affected preparers, users, auditors and regulators. It is also seeking information on specific aspects of these requirements, including the related credit risk disclosures in IFRS 7 Financial Instruments: Disclosures.
The request for information is open for comments until 27 September 2023.

IFRS 16 sale and leaseback amendments adopted for use in the UK

The UK Endorsement Board has adopted Lease Liability in a Sale and Leaseback – Amendments to IFRS 16 issued by the IASB in September 2022. The amendments have an effective date of 1 January 2024, with earlier application permitted.

International Sustainability Standards Board

ISSB publishes first two International Sustainability Disclosure Standards

As discussed in Richard Barker's article, the ISSB has published its first two International Sustainability Disclosure Standards. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information provides overall requirements for an entity to disclose sustainability-related financial information about its sustainability-related risks and opportunities while IFRS S2 Climate-related Disclosures requires information about climate-related risks and opportunities.

ISSB seeks feedback on its priorities for the next two years

As discussed in Laura Woods’ article, the ISSB has launched a consultation seeking feedback on its priorities for the next two years. The comment period for the consultation closes on 1 September 2023.

UK GAAP

Periodic Review of UK GAAP

The comment period on the Financial Reporting Council’s (FRC) exposure draft proposing a number of changes arising from the second periodic review of UK GAAP has now closed. The FRC is expected to publish the finalised amendments later this year with an anticipated effective date of 1 January 2025. 

FRC issues exposure draft addressing ‘pillar two’ tax rules

The FRC published FRED 83, an exposure draft proposing amendments to FRS 101 Reduced Disclosure Framework and FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland in response to the OECD’s ‘pillar two’ tax rules. The proposed amendments are designed to provide similar accounting relief and require similar disclosures to the proposals issued by the IASB that resulted in the changes to IAS 12 discussed above. FRED 83 had a short consultation period – which has now closed – to allow the FRC to finalise the resulting amendments as soon as possible.

Eddy James, External Adviser on Corporate Reporting (Contractor), ICAEW