As we discussed in this December 2019 post, the SEC has publicly raised concerns and issued comments about disclosures surrounding supplier finance programs. On October 21, 2020, the FASB decided to add a project to its Technical Agenda titled “Disclosure of Supplier Finance Programs involving Trade Payables.” You can read the Board Meeting Handout discussion of the project here.
The SEC’s comments and the FASB’s updated Technical Agenda seem to be sending a clear message: if you are using this kind of finance tool be sure to address disclosures in a robust manner. As a starting point, here is a list of disclosure considerations from an SEC comment letter:
We have reviewed your response to our prior comment. Please address the following:
Tell us the dollar amount of accounts payable that were settled via your supply chain finance program for each year from 2012 to 2018.
Tell us the balance of your accounts payable that represents amounts due to participating financial institutions under your supply chain finance programs as of each year from 2012 to 2018.
Provide us an analysis to support your conclusion that amounts settled under your supply chain finance program are accounts payable rather than bank financing.
Your analysis should also address the classification of your payments made to the participating financial institutions as well as related disclosure of non-cash financing activities required by ASC 230-10-50-3.
You state in your response that the payment terms to the participating financial institution are the same as if you paid the supplier directly. Please tell us the terms of your supply chain finance arrangements with the participating financial institutions as well as the payment terms with your vendors.
You also state in your response that the program improved your accounts payable days. Please explain how the supply chain finance program increased your accounts payable days outstanding.
Tell us the extent to which the continued improvement to your accounts payable days, and related liquidity, are expected to continue as well as the factors, such as changes in interest rates, that may limit the availability of your supply chain finance programs.
To the extent material, expand your management’s discussion and analysis to address the impact the supply chain finance program has had on your liquidity and whether or not that impact is expected to continue.
Please ensure you have filed as exhibits, all agreements relating to your supply chain finance program.
As always, your thoughts and comments are welcome!