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ACCT Assignments and Submissions
Course: ACCT XXXXXXXXXXIntermediate Accounting I (2225)
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Excellent
100 points
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Very Good
90 points
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FASB Report: ACCT 310
TOPIC:
Disclosure of Supplier Finance Program Obligations
Soyoon Yoon
History
The FASB, ‘Financial Accounting Standards Board” came up with a proposal which they wanted to amend which says that the entities that use any kind of supplier finance to pay for the goods purchased by them need to disclose all the key terms and information about the obligations which they have as a result of using the supplier finance at the end of each reporting period.
The proposal went for stakeholders’ analysis to see how viable the project is and what the implication that the stakeholders will face as a result of this amendment both from the qualitative and quantitative points of view.
The proposal was not intended to make any change in the recognition, measurement, or presentation of financial statements for supplier finance program obligations, which are already classified as trade payables or bank debt (Cornejo 2018).
For determining whether supplier finance has been used or not the a
angement between the entry and the finance provider, other than the supplier will be looked at. The determination will be confirmed if the entity who is obligated to pay is paying to someone other than the party, here it will be clear that supplier finance has been used.
Supplier finance has become such a popular concept in the world because of the potential that it gives to the parties involved:
Monetization of trade receivables: The owner of trade receivables gets instant cash and the program helps them reduce their credit exposure.
Extended payment terms: Because the owner of trade receivables has the option to see the trade receivable, they can give the buyer an extended credit period.
Operational benefits: The optimization of various processes
And many others
Supplier finance as a concept has been there for a long but the increase in usage is seen in the last couple of years, and therefore the FASB wants to make sure that the disclosures are on the right way going forward. This will ensure better decision-making and low frauds which can otherwise take place.
Introduction
The supplier finance a
angement has an entity that buys the goods or services on credit, which is also known as the purchaser, and there is the bank that makes the payment to the good supplier, the bank here is known as the financial institution or the intermediary and the seller who is selling the goods is the supplier.
Supplier finance is also known as reverse factoring which is a solution designed by the creditors and large financial institutions to help medium and small enterprises pay off their suppliers immediately by getting a longer-term payment structure from the intermediary or the one who is providing the finance in this case.
The benefits of supplier finance are:
Improvement in working capital position: With supplier finance, the longer payment that the company has to receive can be converted into cash and this can improve the cash conversion cycle of the company which will improve the working capital position of the company as now the company will need less working capital to fund its cu
ent liabilities (Tunca 2018)
Strengthening relationships: The use of supplier finance also strengthens the supplier relationship as it makes sure that the suppliers are paid up front and the payment can be made to the financial intermediary at a subsequent interval which does not involve the supplier anymore
Cu
ent Status
The cu
ent status of the program is that the following disclosures are mandatory for the party who is undertaking supplier finance to make the payment, this will ensure that all the disclosures are done, and the amendment is successful.
All the items related to the program which the company and its management can identify
Amount outstanding at the end of the reporting period
Any obligations which are rolled forward, using the following calculations
= Amount outstanding at beginning of period + any amount added during the period – amount settled during the period – amount outstanding at the end of the period
The proposal is still in the discussion phase and will apply retrospectively to all companies and all periods. This will ensure the perfect way to disclose everything and make sure that it is making sense. The effective date for this has not been determined yet, as the FASB (Financial Accounting Standards Boards) is still waiting for the analysis by the stakeholders to implement the program.
Implications
The implication of this amendment and disclosure will be on the buyer of the products and services, i.e., the supplier finance products, which mean that any of the buyer going forwards will need to make a disclosure which is stated above as required by the FASB (Financial Accounting Standards Board) if they are using the supplier finance program. This disclosure will impact the balance sheet which will have all the details and also the notes to accounts which will have the detailed disclosure of the key terms and other values which are required to be disclosed.
Because of the benefits, supplier finance has it does not have very high implications on the financial statement disclosure that the FASB (Financial Accounting Standards Board) is proposing. This disclosure is mainly to make sure that all the companies which are using it intensively can get it disclosed in the financial statements at the end of each reporting period to make the investors aware of the financial position of the company, without the disclosure of the financial position of the company seems very good even though they may be selling a lot of goods on credit.
Conclusion
Overall the program will be effective as it can be sensed that this will give the investor who wants to invest in the company more information on the supplier finance things which is also a material thing and can impact the decision of the investor because in the balance sheet the firm using the supplier finance may decrease the trade receivables and increase the cash as a result of using the supplier finance and transfe
ing a whole lot of trade receivables to the supplier finance entity.
After going through the documents and research I believe that this disclosure is very important because until now any company using supplier finance discloses whatever they want to and does not have a set of things which need to be disclosed that can impact the investors. But after the amendment when the program becomes effective this will change, and the buyer of the supplier finance will have to make sure that the disclosure is done according to the accounting standards which must be followed by the company.
References
Cornejo Fernández, H. H XXXXXXXXXXHow do companies report information about their suppliers in their non-financial reports.
FASB Proposes to enhance transparency around supplier finance programs, FASB, retrieved on 10th July 2022, from
https:
www.fasb.org/page/getarticle?uid=fasb_Media_Advisory_12-20-21_Body_ XXXXXXXXXX&isNewsPage=true
Tunca, T. I., & Zhu, W XXXXXXXXXXBuyer intermediation in supplier finance. Management Science, 64(12), XXXXXXXXXX.
Yan, N., He, X., & Liu, Y XXXXXXXXXXFinancing the capital-constrained supply chain with loss aversion: Supplier finance vs. supplier investment. Omega, 88, XXXXXXXXXX.
Appendix A – Research Tracke
No.
Date
Question Pursuing, Information Sought, Rationale for Search
Tool or Source Used
Concepts or Keywords, Terms, Phrases
Search Strategy
Results
Decision, Action, Next Step
1
01/07/2022
Context and History
FASB Website, and other journals
Disclosure of Supplier Finance Program Obligations
FASB Reports
FASB has a great implication for the topics
To get the status of the program
2
03/07/2022
Cu
ent Status
FASB website, published journals
Supplier Finance Program
Journals, Keywords, etc.
Implemented
Implications
3
05/07/2022
Implications
Website, journals
Supplier Finance
Keywords
Awaiting response from stakeholders