The Financial Reporting Council (FRC) have released FRED 84 in recent days which proposes some amendments to FRS 102, and specifically disclosures relating to supplier finance arrangements.
The changes are based on similar amendments made to IAS 7 Statement of Cash Flows and introduce new disclosure requirements in respect of supplier finance arrangements. These amendments are intended to improve the information available to users where an entity who prepares a cash flow statement enters into a supplier finance arrangement. It is proposed that the amendments will be effective for periods beginning on or after 1 January 2025, with early adoption permitted.
As many entities are either small, a qualifying entity claiming exemption from preparing a cashflow statement or do not have any supplier finance arrangements, these changes are expected to impact only a small number of companies.
Supplier finance arrangements are 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 and conditions of the arrangements at the same date as, or a date later than, suppliers are paid. These arrangements provide the entity with extended payment terms, or the entity’s suppliers with early payment terms, compared to the related invoice payment due date. Supplier finance arrangements are often referred to as supply chain finance, payables finance or reverse factoring arrangements. Arrangements that are solely credit enhancements for the entity (eg financial guarantee contracts) or instruments used to settle directly with a supplier the amounts owed (eg credit cards) are not supplier finance arrangements.
The FRED 84 consultation remains open for comment until 31 December 2023.