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Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 121

Accounting Standards Update No. 2022-04 —Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

Exposure Draft - Proposed Accounting Standards Update 2021-007 —Liabilities —Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

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Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 121

Summary - This ASU amends the FASB Accounting Standards Codification™ for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 121 which expresses the views of the staff regarding the accounting for obligations to safeguard crypto-assets an entity holds for platform users.

The FASB Codification contains the authoritative standards that are applicable to both public entities and nonpublic entities. Content contained in the SEC sections of the Codification is provided for convenience only and relates only to SEC registrants.

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Accounting Standards Update No. 2022-04 —Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances the transparency about the use of supplier finance programs for investors and other allocators of capital.

The ASU affects buyer companies that use supplier finance programs in connection with buying goods or services. By entering into supplier finance programs with finance providers, suppliers have the option to be paid by a third party in advance of an invoice due date, based on invoices that the buyer has confirmed as valid. These arrangements are also commonly known as reverse factoring, payables finance, or structured payables arrangements.

Under the new ASU, a company that uses a supplier finance program in connection with the purchase of goods or services will be required to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. Specifically, a buyer will be required to provide the following qualitative and quantitative information:

The key terms of the program, including a description of the payment terms (including payment timing and basis for its determination) and assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary.
For the obligations that the buyer has confirmed as valid to the finance provider or intermediary:
The amount outstanding that remains unpaid by the buyer as of the end of the annual period (the outstanding confirmed amount).
A description of where those obligations are presented in the balance sheet.
A rollforward of those obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid.

The buyer should disclose the outstanding confirmed amount as of the end of each interim period.

This ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022, except for the pending content in paragraph 405-50-50-3(b)(2), which shall be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted.

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Exposure Draft - Proposed Accounting Standards Update 2021-007 —Liabilities —Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

Summary - The FASB issued a proposed Accounting Standards Update (ASU) intended to help investors and other allocators of capital better consider the effect of supplier finance programs on a buyer’s working capital, liquidity, and cash flows. Stakeholders are encouraged to review and provide comment on the proposed ASU by March 21, 2022.

The proposed ASU would affect buyers that use supplier finance programs in connection with the purchase of goods and services. Supplier finance programs allow a buyer to offer its suppliers the option to be paid by a third party in advance of an invoice due date, based on invoices that the buyer has confirmed as valid. These transactions are also commonly known as reverse factoring, payables finance, or structured payables arrangements.

Stakeholders have observed that there is a lack of transparency about supplier finance programs because (1) there are no explicit disclosure requirements in Generally Accepted Accounting Principles (GAAP) for those programs; and (2) a buyer may present obligations covered by those programs in the same balance sheet line item as accounts payable or in another balance sheet line item depending on the facts and circumstances of the arrangement.

The proposal would address these issues by requiring the buyer in a supplier finance program to disclose sufficient information about the program to allow an investor to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. These disclosures would include the key terms of the program, as well as the obligation amount that the buyer has confirmed as valid to the third party that is outstanding at the end of the reporting period, a rollforward of that amount, and a description of where that amount is presented in the balance sheet.

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