FRC Proposed Changes to FRS 102 for Supplier Finance Arrangements

The FRC has issued a new Financial Reporting Exposure Draft (FRED) recommending changes to FRS 102, mainly for medium and large entities, with regard to supplier finance arrangements.

Supplier finance arrangements are situations where finance providers offer to pay amounts owed by an entity, to its suppliers, and the entity then agrees to meet the terms and conditions of the payment arrangements set by the finance provider at the date the suppliers are paid or at a later agreed date. This effectively gives the entity an additional period of credit.

The exposure draft is based on amendments which the IASB issued in May 2023 and sets out disclosures to be made around supplier finance arrangements to ensure users of financial statements have information about the use of supplier finance arrangements and the impact that this has on the entity’s financial position and available cash. In the absence of these specific disclosure requirements, users may not have received sufficient information to adequately asses these areas.

A summary of the proposed disclosures for supplier finance arrangements are:

• the terms and conditions of the supplier finance arrangements at the beginning and end of the reporting period:
• the amounts in the entity’s statement of financial position that are part of a supplier finance arrangement;
• the amounts for which suppliers have already received payment from the finance providers;
• the range of payment due dates for supplier finance arrangements
• the comparable trade payables that are not part of a supplier finance arrangement different endings here – some semi-colons, some none etc.

Relief from providing comparative information in the first year of adoption is also proposed, including opening balance information around payments received from suppliers.

The consultation period is short and will run until the end of 2023, the FRC then proposes that any amendments become effective for accounting periods beginning on or after 1 January 2025, with early application permitted. The exposure draft can be found here and is currently open for comment until 31 December 2023.