Supplier finance arrangements

Learning objectives

• Determine whether an arrangement is a supplier finance arrangement (characteristics, exclusions).L2, L3
• Prepare the disclosures about supplier finance arrangements (terms and conditions, carrying amounts, amounts already paid, ranges of payment due dates, non-cash changes).L2, L3, L4

Normative references

• IAS 7 §44FAn entity discloses information about its supplier finance arrangements that enables users to assess the effects of those arrangements on its liabilities and cash flows and on its exposure to liquidity risk.
• IAS 7 §44GA supplier finance arrangement is characterised by one or more finance providers offering to pay amounts an entity owes its suppliers, and the entity agreeing to pay according to the terms of the arrangement at the same date as, or a date later than, the suppliers are paid; compared with the related invoice payment due date, these arrangements provide the entity with extended payment terms or the entity's suppliers with early payment terms (they are often referred to as reverse factoring or supply chain finance). Arrangements that are solely credit enhancements for the entity (for example financial guarantees, including letters of credit used as guarantees) and instruments used by the entity to settle directly with a supplier the amounts owed (for example credit cards) are not supplier finance arrangements.
• IAS 7 §44HTo meet the objective, the entity discloses in aggregate for its arrangements: (a) their terms and conditions (for example extended payment terms and security or guarantees provided), with those of arrangements that have dissimilar terms and conditions disclosed separately; (b) as at the beginning and end of the period, the carrying amount of the financial liabilities that are part of the arrangements and the line items in which they are presented, the carrying amount of those for which suppliers have already received payment from the finance providers, and the range of payment due dates for those liabilities and for comparable trade payables that are not part of an arrangement (with explanations or additional ranges if the ranges are wide); (c) the type and effect of non-cash changes in the carrying amounts of the liabilities concerned (for example business combinations, exchange differences, other transactions that do not require the use of cash).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

14 questions

• A letter of credit used solely as a guarantee for a supplier is a supplier finance arrangement.L2
• In a supplier finance arrangement, a finance provider pays the entity's suppliers, and the entity pays the provider on the same date or at a later date.L2
• What is the objective of the disclosure on supplier finance arrangements?L2
• Which of these arrangements of Nelbris is a supplier finance arrangement?L3
• Which maturity information does the entity disclose for its supplier finance arrangements?L3
• Which of these disclosures are required, at the beginning and end of the period, for supplier finance arrangements?L3
• When reviewing Peltvane's note on its reverse factoring programme, which of these findings call for a correction?L4
• Lirdis's liabilities under its supplier finance arrangement amount to {arrangement_liabilities} at year-end; for {suppliers_unpaid} of that amount, suppliers have not yet been paid by the provider (case data). Compute the carrying amount of liabilities for which suppliers have already been paid.L3
• Selvis's liabilities under its arrangement: opening {opening_liabilities}; invoices added to the programme {invoices_added}; payments to the provider {payments_to_provider}; liabilities taken over from an acquired subsidiary {acquired_liabilities}; exchange differences {fx_increase} (increase). Compute the closing carrying amount and total non-cash changes to describe.L4
• Tormane presents the payment of its suppliers by corporate credit cards as a “supplier finance arrangement”. What is the error?L2
• Calvis's note on its supplier finance programme discloses: programme terms, carrying amount of liabilities and amount already paid to suppliers; it states that these liabilities are payable in 90 to 120 days. What is the error?L3
• A bank offers Morbis's suppliers payment at 10 days, with a discount at their expense; Morbis continues to pay the bank at the original 60-day due date (case data). Is this a supplier finance arrangement?L3
• Delvane has two programmes: one with terms extended to 180 days and security over inventories, the other with neither extension nor security (case data). How should terms and conditions be disclosed?L4
• The distributor Nalvis lists: (1) a bank reverse factoring programme; (2) letters of credit guaranteeing imports; (3) purchasing cards; (4) a discount offered by a supplier for cash payment. Write a qualification analysis and the list of disclosures to provide.L4