ACCOUNTING STANDARDS UPDATE 2022-04—LIABILITIES—SUPPLIER FINANCE PROGRAMS (SUBTOPIC 405-50): DISCLOSURE OF SUPPLIER FINANCE PROGRAM OBLIGATIONS
On September 29, 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, to enhance the transparency about the use of supplier finance programs for investors and other allocators of capital.
The amendments in the Update apply to all entities that use supplier finance programs in connection with the purchase of goods and services (herein described as buyer parties). Under the new ASU, an entity 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.
Transition and Effective Dates
The amendments in the Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted.
During the fiscal year of adoption, the information on the key terms of the programs and the balance sheet presentation of the program obligations, which are annual disclosure requirements, should be disclosed in each interim period.
The amendments in the Update should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively.
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